Executive Summary / Key Takeaways

• AI-Driven Turnaround: Upwork has achieved a pivotal turnaround, returning to positive Gross Services Volume (GSV) growth in Q3 2025 after five quarters of headwinds, largely propelled by its strategic embrace of AI across its platform and a surge in AI-related work.
• Record Profitability & Strong Cash Flow: The company delivered record Q3 2025 revenue of $201.7 million, GAAP net income of $29.3 million, and an all-time high adjusted EBITDA of $59.6 million with a 29.6% margin, demonstrating robust operational efficiency and strong free cash flow generation.
• Enterprise Expansion with Lifted: Upwork's new subsidiary, Lifted, formed through the acquisitions of Bubty and Ascen, significantly expands its reach into the $650 billion contingent workforce market by offering comprehensive, contract-agnostic enterprise solutions beyond traditional independent contracting.
• Accelerated Growth Outlook: Management anticipates continued positive GSV growth, with acceleration expected in 2026, driven by ongoing AI innovations, the scaling of its Business Plus offering for SMBs, and the ramp-up of Lifted's enterprise solutions.
• Competitive Edge through Technology: Upwork's proprietary AI, Uma, and its extensive global talent pool provide a distinct competitive advantage, enhancing matching efficiency, user productivity, and the ability to address critical AI skill gaps for businesses of all sizes.

The Future of Work: Upwork's Strategic Evolution

Upwork Inc. (NASDAQ:UPWK) stands at the forefront of a profound transformation in the global labor market, evolving from a traditional freelance marketplace into a sophisticated, AI-native work ecosystem. Since its inception in 2013 as Elance-oDesk, and its rebranding in 2015, Upwork has consistently adapted to the changing demands of businesses and talent. The company's core business model connects businesses with independent professionals across a vast array of skills and work types, including freelance, fractional, and payrolled engagements. This dual-sided platform generates revenue primarily through service fees charged to both talent and clients, as well as through premium subscriptions and value-added services.

The current industry landscape is defined by the pervasive influence of artificial intelligence, which is reshaping how work is done and how talent is sourced. A significant AI skills gap persists, with 63% of employers citing it as a major barrier to business transformation. Upwork is strategically positioned to bridge this gap, becoming critical infrastructure for organizations seeking to combine human expertise with AI capabilities. The company's resilience and strategic foresight were particularly evident in 2024, a year of significant transformation where Upwork achieved record financial performance and substantially outperformed the broader staffing industry, growing revenue 12% year-over-year against an estimated 9% decline in traditional staffing.

Technological Differentiation and AI-Native Platform

Upwork's competitive moat is significantly strengthened by its proprietary technology, particularly its "AI-native platform" and "Uma, Upwork's Mindful AI." Uma is deeply embedded across multiple workflows, acting as an AI work companion that streamlines processes for both clients and talent. For instance, Uma assists clients by sourcing and interviewing talent, drafting end-to-end talent proposals, and helping with project management tasks like proposing milestones.

The tangible benefits of Uma are quantifiable and impactful. The upgraded Uma proposal writing feature led to a 15% increase in Uma-generated proposals, while Uma Recruiter has doubled the acceptance rate from invited talent. AI-driven search and recommendation improvements are projected to contribute an impressive $100 million in incremental Gross Services Volume (GSV) in 2025 alone. Internally, Upwork leverages AI for operational efficiencies, with over 35% of deployed code now AI-generated and the Search team's fine-tuned LLM evaluations reducing model iteration time and cost by over 70%. These technological advancements not only enhance the user experience but also directly contribute to Upwork's competitive advantage, driving higher client conversion rates, faster hiring, and increased contract volumes.

Strategic Initiatives Driving Growth

Upwork's growth strategy is anchored in three key catalysts: AI, enterprise expansion, and ads & monetization.

The AI-related work segment is a powerful tailwind. GSV from AI-related work surged 53% year-over-year in Q3 2025, a notable acceleration from 30% in Q2 2025. The number of clients engaging in AI projects increased 45% year-over-year in Q3 2025, and the AI-enabled talent base grew 41% over the same period. This specialized work commands a significant premium, with AI-related projects earning approximately a 40% higher hourly rate for freelancers. This trend underscores AI's role in fractionalizing traditional full-time work, creating new demand for contingent talent on Upwork.

The Enterprise expansion is a transformational opportunity. In August 2025, Upwork launched Lifted, a wholly-owned subsidiary, following the acquisitions of Bubty B.V. and Ascen Inc. Lifted is purpose-built to provide comprehensive contingent workforce solutions for large enterprises, spanning talent sourcing, contracting, and workforce management across all contingent work types, including employer of record (EOR) and staff augmentation. This strategic move positions Upwork to capture a greater share of the estimated $650 billion contingent work market. While Enterprise revenue saw a 3% year-over-year increase in Q3 2025, primarily from Ascen, the company expects a temporary decline in Q4 2025 as it prioritizes integration and repositioning for Lifted's launch to customers in early 2026. Growth is anticipated to accelerate in 2026 and become meaningfully accretive to GSV, revenue, and adjusted EBITDA in 2027.

Within the Marketplace, Business Plus and ads & monetization products are key drivers. Business Plus, a premium offering for larger SMBs and teams, has seen strong adoption, with active clients growing 36% quarter-over-quarter in Q3 2025. These clients spend approximately three times more than typical platform users, and 35% of Business Plus clients in Q2 2025 were new to Upwork, indicating strong product-market fit. Ads and monetization products, including Connects and Freelancer Plus subscriptions, continue to provide a substantive revenue tailwind, with revenue from these products growing 19% year-over-year in Q3 2025.

Financial Performance and Liquidity

Upwork's financial performance in Q3 2025 marked a significant turning point. The company reported record quarterly revenue of $201.7 million, a 4% increase year-over-year, surpassing analyst expectations. GAAP net income rose to $29.3 million, up 6% from Q3 2024. Adjusted EBITDA reached an all-time high of $59.6 million, translating to a record adjusted EBITDA margin of 29.6%.

Gross Services Volume (GSV) grew 2% year-over-year to $1.02 billion in Q3 2025, signaling a return to positive growth after five quarters of headwinds. This growth was supported by a 5% increase in average GSV per active client, which surpassed $5,000, and a 12% increase in overall spend per contract, marking a fourth consecutive quarter of growth. The Marketplace take rate expanded to 18.9% in Q3 2025, up from 18.3% in Q3 2024, driven by dynamic pricing and Business Plus. Gross margin for Q3 2025 was 77%, a slight decrease from 78% in Q3 2024, influenced by lower margins in Managed Services. Operating expenses demonstrated continued discipline, with research and development decreasing 6% and sales and marketing decreasing 24% year-over-year in Q3 2025 due to cost-saving measures. General and administrative expenses, however, increased 32% due to higher bonus expense and acquisition-related consultant fees.

Upwork maintains a robust liquidity position. As of September 30, 2025, cash and cash equivalents stood at $260.8 million, complemented by $382.3 million in marketable securities.

The company generated a record $69.4 million in free cash flow in Q3 2025. For the nine months ended September 30, 2025, net cash provided by operating activities was $184.6 million. Upwork actively returns capital to shareholders, repurchasing 2.1 million shares for $31 million in Q3 2025. The company had $98.1 million remaining under its 2025 Share Repurchase Authorization as of September 30, 2025.

Competitive Landscape and Positioning

Upwork operates in a highly competitive and rapidly evolving market for contingent talent. Its primary direct competitors include online freelancer platforms like Fiverr International Ltd. (FVRR) and Freelancer Ltd. (FLN), as well as broader professional networking platforms such as LinkedIn (owned by Microsoft (MSFT)). Upwork's competitive advantages stem from its strong brand recognition, extensive global talent pool, and comprehensive platform features.

Upwork's strategic positioning emphasizes professional, long-term freelance relationships and robust enterprise tools, differentiating it from Fiverr's more gig-oriented and transactional model. While Fiverr excels in user-friendly interfaces for smaller projects, Upwork's integrated workflows for talent sourcing, contracting, and payment protection offer greater efficiency for complex, ongoing engagements, particularly for larger businesses. Compared to Freelancer Ltd., which focuses on open bidding and crowdsourcing, Upwork's platform provides more advanced payment and invoicing systems, enhancing the seamlessness of remote work management. Upwork's ability to attract and retain high-value clients, as evidenced by the growth in GSV per active client and the success of Business Plus, underscores its strength in cultivating deeper client-talent relationships.

The launch of Lifted further sharpens Upwork's competitive edge in the enterprise segment. While other players may focus on specific niches (e.g., temp staff only, EOR services only, or localized talent pools), Lifted offers a "full stack," "digitally native," "contract-agnostic," and "global solution" for the entire spectrum of contingent work. This comprehensive approach, integrating with existing MSPs, VMS platforms, and HRIS systems, allows Upwork to address complex enterprise needs without requiring compromises on flexibility, compliance, or scale. This positions Upwork as a dominant infrastructure provider for global enterprises, a unique value proposition that few competitors can match.

Outlook and Risks

Upwork has raised its full-year 2025 revenue guidance to a range of $782 million to $787 million, with the majority of this increase attributed to the ongoing strength of its marketplace business. Full-year adjusted EBITDA guidance was also increased to $222 million to $225 million, representing a 28% margin at the midpoint and a more than 6-point margin expansion over 2024. Non-GAAP diluted EPS for 2025 is projected between $1.35 and $1.37, a 30% increase at the midpoint from 2024.

For Q4 2025, the company expects revenue between $193 million and $198 million and adjusted EBITDA between $49 million and $52 million, reflecting a 25% to 26% margin. This guidance incorporates incremental costs associated with the Bubty and Ascen acquisitions and temporary integration expenses for Lifted. Despite these investments, Upwork remains committed to its long-term adjusted EBITDA margin target of 35%. Management anticipates continued positive GSV growth, with acceleration expected in 2026, driven by AI innovations, Business Plus, and the ramp-up of Lifted.

While the macroeconomic environment remains unpredictable, Upwork's internal initiatives have consistently allowed it to outperform. Key risks include the inherent uncertainty in worker classification laws, which are complex and subject to evolving interpretations. Regulatory scrutiny on technology companies and those dealing with independent contractors is also increasing. Additionally, integrating acquisitions, while strategic, carries operational risks and potential for disruption. The company also faces payment and fraud risks, which require continuous improvement in detection and prevention.

Conclusion

Upwork is charting a compelling course in the evolving landscape of work, driven by its strategic embrace of AI and a focused expansion into the enterprise market. The company's Q3 2025 results, marked by a return to GSV growth and record profitability, underscore the effectiveness of its AI-native platform and tailored offerings. By leveraging Uma, its Mindful AI, Upwork is not only enhancing productivity and matching efficiency for its vast talent and client base but also positioning itself as a critical enabler for businesses grappling with the AI skills gap.

The launch of Lifted, a comprehensive enterprise solution, represents a significant step towards capturing a larger share of the contingent workforce market, offering a unique, full-stack solution that addresses complex organizational needs. While macroeconomic uncertainties and integration challenges persist, Upwork's disciplined execution, robust liquidity, and commitment to shareholder value, including ongoing share repurchases, provide a solid foundation. The company's technological leadership and strategic competitive positioning against rivals, particularly in the high-value enterprise and AI-driven segments, suggest a strong trajectory for accelerated growth and sustained profitability in 2026 and beyond.