UPWK – Overvalued

by Flannel_Man_

Somehow people got it in their heads that Upwork is a ‘stay at home’ play. Is it though?

How does upwork make money?

Upwork has two types of users: Clients and Freelancers.

A Client will go on upwork and post a job. Freelancers will then bid on that job. The more popular the job is, the more freelancers will bid on it thereby driving down the price of the contract or the hourly wage.

Upwork takes a (large) cut from the Freelancer, not from the client. Prior to covid, upwork was already flooded with cheap labor. A majority of the contracts that keep upwork afloat are software contracts. If I’m an experienced American software engineer with a desired hourly wage of $70-$120 trying to make a living, I’d have to go on upwork and spend time putting up a bid along with a cover letter and answering any ancillary questions a client asks in order to bid on a contract. Most of the contracts i’ve seen have 20+ other people bidding on them. Even if someone does miraculously get the job, upwork takes 20% off the top. The whole process sucks. Because of that, some contractors will use upwork to find clients, then take the conversation off upwork to avoid paying the 20% fee. Upwork recently implemented new protocols to attempt to stop people from doing that because it’s such a problem (for them. Its great for freelancers).

Highly paid software engineers are the bread and butter for upwork. However, the bidding model that upwork uses drives the price of contracts down. So in the end, upwork makes less money and the client gets shittier quality work from less experienced individuals.

On top of that, covid has added even more freelancers to the marketplace driving contract prices down even further.

The play:

I shorted UPWK today. Cramer mentioned it last Friday and it went up a point (because Cramer has the midas touch). Looking at the chart pre-covid, i’d expect it to head back down to 9 or below on shitty earnings in August. I plan on buying puts in July leading in to earnings.

tldr; UPWK is not a stay at home play and currently has an inflated price. Short or buy puts.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.