Upwork reduces its full-year outlook due to the impact of AI on its marketplace.

      Upwork's stock plummeted sharply after the freelance platform reduced its full-year projections, overshadowing a stronger-than-expected earnings report for the second quarter and raising worries that AI may be diminishing the jobs it facilitates. The shares fell by as much as 21% in after-hours trading on Monday and ended Tuesday around 15% lower at $8.39.

      The company reported second-quarter revenue of $191.7 million, a 2% decline year-over-year but above predictions, with adjusted EBITDA increasing 12% to $64.1 million and non-GAAP earnings at $0.41 per share.

      However, it was the lowered guidance that alarmed investors. Upwork revised its full-year revenue outlook from a range of $760 million to $790 million down to $730 million to $750 million, and projected third-quarter revenue between $176 million and $184 million, short of a consensus estimate close to $194 million.

      Two figures in the results highlight the caution; gross services volume—the total value of work on the platform—decreased to $966.4 million, a drop of roughly 4%, and active clients decreased by 4% to 763,000.

      CEO Hayden Brown attributed the disappointing results to "a quicker pace of AI-related automation, ongoing weakness in the labor market, and further decline in Google SEO.”

      Upwork counters that AI-related work is its fastest-growing segment, currently at an annualized rate of about $330 million, showing a 22% increase, with the AI consulting subsegment growing around 50%. The company has also introduced an integration that allows AI agents from Claude, ChatGPT, and Cursor to directly hire human freelancers.

      Brown contended that AI is dividing the market rather than eliminating it, as clients are hiring freelancers to complete or adjust work initiated with AI tools. Management noted that about 10% of gross services volume is adversely affected by shifts driven by AI.

      The results reflect this tension. The technology propelling Upwork’s fastest-growing revenue is simultaneously seen as damaging its core marketplace, where routine tasks like basic writing, translation, and simple coding are increasingly automated.

      Gross services volume per active client hit a record, indicating that the clients who remain are spending more on higher-value work, even as the total number of clients declines.

      Despite this, analysts lowered their price targets. Needham maintained its Buy rating but reduced its target from $15 to $11, Goldman Sachs decreased from $17.50 to $11.50, RBC adjusted from $9 to $8, and Scotiabank cut from $10 to $8.

      This year, Upwork shares have lost over half their value, trading near a 52-week low of $7.44 compared to a high of $22.84.

      Fiverr reported two weeks earlier, noting a 10% decline in revenue and a 22% drop in active buyers, with its shares falling about 20%. Both marketplaces indicated a similar trend: fewer customers, each spending more.

      Additionally, a study by Xiang Hui and Oren Reshef from Washington University and Luofeng Zhou from New York University, using Upwork's data, found that writing-related freelancers experienced a 2% drop in monthly jobs and a 5.2% dip in earnings after ChatGPT was released, while image-related freelancers faced even greater losses.

      In May, Upwork cut approximately 145 positions, or a quarter of its workforce, three months prior to these results, incurring restructuring charges of $13.8 million in the quarter.

      The company has pivoted in response to this change, promoting AI consulting and enterprise services while creating tools that integrate freelancers with AI systems rather than positioning them in opposition. The question that remains is whether this strategy will sufficiently compensate for the decline in routine work, as highlighted by the guidance reduction.