In its public filing for the six months ended June 30, 2023 Upwork said this about its results for the period:
"For the three and six months ended June 30, 2023, marketplace revenue increased by 9% and 11%, respectively, as compared to the same periods in 2022. These increases were driven by client fee changes related to the shift to our Client Marketplace offering in April 2022, an increase in the second quarter of 2023 in the number of virtual tokens, which we refer to as Connects, needed by talent to bid on projects and paid promotional products on our work marketplace, and the contract initiation fee for clients on our Client Marketplace offering introduced in April 2023. These drivers were partially offset by a reduction in talent service fees, as a result of the changes we made in May 2023 to our tiered service fee structure. Additionally, we continued our efforts to better address large enterprise and other clients through our Upwork Enterprise and other premium offerings. As a result, for the three and six months ended June 30, 2023, Enterprise Revenue (as defined below) increased 16% and 12%, respectively, as compared to the same periods in 2022, which also contributed to the increase in marketplace revenue during those periods.
During the three and six months ended June 30, 2023, GSV remained relatively flat at $1.0 billion and $2.0 billion, respectively, as compared to the same periods in 2022, primarily due to the lapping of strong growth in the prior periods, as well as changes to client fees as a result of the shift to our Client Marketplace offering in April 2022. The number of active clients increased 2% as of June 30, 2023, as compared to the same period in 2022, and our GSV per active client increased 2% as of June 30, 2023, as compared to the same period in 2022, primarily due to increased spend from existing clients."
In plain English, the dollar volume of projects (GSV) did not grow year on year, but Upwork's revenue was up 11 percent because the reduction in freelancer fees due to the flat 10% rate was more than offset by the increase in connects income and other factors. There are other factors at work, so this is just an estimate - the real number is likely higher, maybe lower.
We know that upwork saw 1.3 million projects completed in 2022, which would have created nearly $20 million in additional revenue for Upwork (with no additional costs) if freelancers bought an average total of only 100 connects per project to submit their proposals to clients.
Upwork hasn't needed to create a big increase in GSV to increase its total revenue more than 10% year-on-year - both clients and freelancers are paying higher fees. But that well of still higher user fees is not bottomless - Upwork needs to get back to strong GSV growth if it's going to deliver strong returns to its investors.
And we don't know whether the weak GSV growth was due to lower market demand or Upwork's "...cost-saving measures, including reducing our investments in brand marketing, vendor spend, and other non-personnel costs. Additionally, in light of the challenging macroeconomic conditions as well as our efforts to reduce spend and streamline operations, we implemented a reduction of our workforce in May 2023 representing approximately 15% of full-time employees, largely in our sales team..." (I doubt the zombie-focused ad campaign of a few months ago brought in a large number of high quality new clients.)
