What Happened?

Shares of online work marketplace Upwork (NASDAQ:UPWK) jumped 26% in the afternoon session after the company announced strong preliminary guidance for Q3 2024, with revenue and EPS expected to exceed the top end of the previous forecast range. Separately, the company announced a restructuring plan that would result in a 21% reduction in its workforce and help generate approximately $60 million in annualized cost savings.

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What The Market Is Telling Us

Upwork’s shares are quite volatile and have had 17 moves greater than 5% over the last year. But moves this big are rare even for Upwork and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was about a month ago when the stock gained 9.5% on the news that activist investor Engine Capital (which owns approximately 3.5% of UPWK shares) sent a letter to its board as part of an effort to drive management to improve shareholder value. Engine Capital believes Upwork's valuation multiple of ~6.5x EBITDA represents a steep discount to its intrinsic value and similar online marketplaces. 

The activist investor called out several areas of concern, including management's lack of focus, poor execution, and excessive spending. These issues are believed to have caused significant management turnover and missed opportunities to market and sell products under the Enterprise division. As a result, Engine Capital recommended a number of measures, including a board refresh, cost optimization, and aggressive share buybacks to drive shareholder returns.

Upwork is down 11.9% since the beginning of the year, and at $12.64 per share, it is trading 19.3% below its 52-week high of $15.66 from January 2024. Investors who bought $1,000 worth of Upwork’s shares 5 years ago would now be looking at an investment worth $853.40.

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