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Will's avatar
Will L Community Member

Upwork’s 2022 Financial Results

Upwork reported its full year 2022 financial results on Thursday. As always, there was some interesting information:

 

The company’s net loss for the year was $89.9 million (up 60% compared to 2021) on revenue of $566.6 million (reflecting a 23% increase over 2021). The Active Clients count rose 6% (to 814,000) for the year. The volume of all transactions across the platform was $4.1 billion (a 16% increase compared to 2021). So Upwork is increasing its revenue at a much faster rate than the growth in client- and freelancer-generated fees, which likely means pricing on Upwork’s services (such as connects) went up during the year. The Provision for Transaction Losses more than quadrupled during the year, rising from 1% of revenue to 4% of revenue. (Amounts Written Off during the year were $13.1 million compared to $3.1 million in 2021.) Upwork spent $4.2 million on Humanitarian Response Efforts in 2022.

 

Interestingly, Upwork says it offers to its employees “…unlimited paid time off in addition to our company-recognized holidays.” (Very nice!)

 

Based on the company’s strong machine learning capabilities in regards to the entire cycle of job posting, proposal submissions, hiring, project completion and client/freelancer ratings I hope Upwork will soon provide information about how the introduction of the proposal bidding process has improved the experience of clients and/or freelancers on the Upwork platform.

 

Interestingly, one client accounted for more than 10% of Upwork’s revenue in both 2021 and 2022.

 

Other interesting quotes from the 2022 10-K:

 

“…for the year ended December 31, 2022, provision for transaction losses increased, as compared to 2021, primarily due to increased instances of fraud, higher chargeback losses, and bad debt losses related to Upwork Enterprise clients…and if our chargeback or return rate becomes excessive, card networks may also require us to pay fines or other fees, engage in remediation efforts, which can be costly and divert the attention of management, or cease doing business with us”

 

“…growth in the number of active clients has decelerated on a year-over-year basis since the second quarter of 2021 and GSV growth on a year-over-year basis has decelerated since the second quarter of 2021…”

 

“Despite our efforts to prevent them from doing so, users circumvent our work marketplace and engage with or take payment through other means to avoid the fees that we charge, and it is difficult or impossible to measure the losses associated with circumvention… Moreover, certain changes we make to decrease circumvention by users have in the past and could again inadvertently result in user dissatisfaction, increased user circumvention, and a decline in user activity on our work marketplace.”

 

“…in certain instances, we will advance payment on a talent invoice if the client issues a chargeback or their payment method is declined. In this circumstance, the talent assigns us the right to recover any funds from the client.”

 

“…we have users of our work marketplace located in over 180 countries…approximately 25% of client spend from our web, mobile, and software development category in 2021 was derived from work where either the talent or the client was located in Ukraine, Russia, or Belarus…we decided in March 2022 to suspend business operations in Russia and Belarus…”

 

“…the year-over-year GSV growth rate decelerated to 16% for the year ended December 31, 2022 from 41% for 2021…”

 

“Of the $4.1 billion of GSV enabled on our work marketplace in 2022, approximately 26% was generated from U.S. talent, which was our largest talent geography in each of 2022, 2021, and 2020, as measured by GSV, while talent in India and the Philippines remained our next largest talent geographies in all three years. Of the $3.5 billion and $2.5 billion of GSV enabled on our work marketplace in 2021 and 2020, respectively, approximately 25% was generated from talent in the United States in each year…Approximately 68% of our GSV in 2022 was generated from U.S. clients, compared to approximately 66% and 67% of GSV in 2021 and 2020, respectively, with clients in no other country representing more than 10% of our GSV in any such year…”

 

“…we currently have a significant surplus of talent in relation to the number of clients actively engaging talent for most categories of services on our work marketplace. As a result of this surplus, we primarily focus our efforts on retaining client spend and acquiring new clients, as opposed to acquiring new talent and retaining existing talent.”

44 REPLIES 44
CJ's avatar
CJ A Community Member

The losses due to client chargebacks and fraud are the DIRECT result of Upwork refusing to implement a suggestion I have made many times that would shutdown almost all client side fraud of this type, and would definitely stop REPEAT offenders, of which their are many: 100% Photo ID verification for all NEWLY create client accounts before they can post a job, and certainly before they can "hire" and rip somebody off. Right now, all Upwork does is shutdown a scammer's account, but with no ID checks for clients they have NO way of knowing the person's TRUE identity to say, notify law enforcement, or prevent the scammer - who currently only needs a new email address - from creating a new UW account and doing the same thing over and over. Those losses are SELF-intlicted wounds caused by Upwork refusing to take basic, common sense steps to prevent and halt a growing trend in client-side fraud and scams for the sake of "ease" and "convenience" for clients at the expense of SAFETY. 

Tiffany's avatar
Tiffany S Community Member

Your suggestion would indeed cut down on chargeback fraud, since it would be quite easy for Upwork staff to thoroughly vet the 3% or so of current client volume who would use the site.

Alexander's avatar
Alexander N Community Member

Scary part of this story is: Upwork depends on *new* clients very much. Someone who already used site many times before and paid is unlikely to charge back - chargebacks are usually a result of deliberate fraud (if someone is just unhappy with freelancer performance there are good mechanisms to get refunded without resorting to chargebacks). This is why Upwork indeed can't create friction for clients because it depends on NEW clients.

Which suggests, most customers are chronically unhappy: they come once and never get back again. Upwork really needs to reduce customer churn rather than fight chargebacks: reducing churn will fix chargebacks by itself (existing customers are less likely to do it in the first place + they will care more about keeping their accounts so won't resort to do what is prohibited by ToS).

Now big question is: when the majority of jobs is BS and are initiated by clients simply because they don't know what they are doing, and CANNOT result in any positive outcome for clients regardless of contractor's performance, how do we reduce clients churn? At least this is the picture in software dev space: people simply want impossible, miraclous results - almost every new development is a "me too" copycat project with no distinct advantage, created in overcrowded niche with billion dollar competitors and they are a schoolteacher from Montana wanting to go after them on a $5000 budget...

David's avatar
David C Community Member

Very well put Alexander. As a freelancer (and not a client) I am not aware of the phrase "customer churn" used in this context, but I am very familiar with the later part of your response where you describe the plethora of "clients" asking for "impossible, miraculous results" for a copycat of some massive project or platform with a minuscule budget. I personally would like to see some implementation of a system whereby "beginners" or those with difficulty gtting into the game can work as a member of a much larger team building small parts of a greater project and getting paid on a per-task basis. This, of course, may not solve the client fraud issue, but I think it may be a way to get more freelancers working even if only one small task at a time. As an example, I am predominately working on building components using the Blazor platform. If a larger application could use a component to accomplish a specific task, I could build such a beast as a small task-based project which the client would only pay for by milestones or completed delivery.

Alexander's avatar
Alexander N Community Member

Problem isn't that the project can't be executed. Often they can. And, punishing a contractor who took a project and failed to execute it, is OK, and it's not an excuse that the client was too complex for too little money - they could just say no.

Problem is that client success is impossible - an executed product can't bring them any revenue, leaving the client explainably, and unfixably, unhappy. It may not result in a chargeback or even a bad feedback for the contractor, but will certainly result in client never doing repeat business - after all, they did it on their personal savings, which simply ran out.

It seems like that a big chunk of Upwork revenue come from clients like this. They can't be made into permanent clients, and as a result, client churn remains high (i.e. time for which the clients stay active on the platform/money they spend before they leave, stays low), and thus constant attraction of new clients is necessary, and this raises possibility of chargebacks - either intentionally fraudlent, or by not knowing/ignoring the rules (why would someone who just came on the platform, care about losing their account?).

I may be pessimistic but it looks to me that this is just what this business is. If we based it on reasonable clients who ask for reasonable things and come back with repeated business, paid with revenue made on their previous successful things built on Upwork, we'd cut our customer base so severely that remaining revenue would be insufficient to keep good contractors on the platform, derailing the whole thing.

I'd love to be proven wrong.

 

... moving down to the next level of cynicism, i can imagine that "reasonable clients who want reasonable stuff" are also, on average, harder nuts to crack and harder to exploit, leaving them less served on the platform/less preferred by savvy, experienced freelancers... but this is a pure speculation

Alper's avatar
Alper D Community Member

"paid with revenue made on their previous successful things built on Upwork"

 

Where did the money come from, for other projects?

Alexander's avatar
Alexander N Community Member

Well, when someone builds something by hiring Upwork contractors to do it, they *expect* it to bring revenue right, otherwise why are they doing it? Let's say, "build my web startup for me that makes me $$$". My point is that it very frequently does not happen simply for being a false expectation - not fixable with any level of contractor skill - which leaves clients dissatisfied and become one-off clients, who never return to Upwork again.

Alper's avatar
Alper D Community Member

This is correct. I think this is partially because money was cheap, and people had a sense of security, had a lot of disposable budget and were feeling adventurous. 

 

The problem with that is, when you are a publicly traded company, like upwork, you're more operating on shareholders and investors money and the revenue you're making is just one metric and is less important than making shareholders and investors happy.

 

When money becomes more expensive, less adventurous disposable budget, no more growth on the platform, shareholders unhappy.

 

I think this is closely related to the term "sustainable growth". We have to accept that there are also other types of jobs. Serving existing businesses for their growth. Reasonable expectations, well paying jobs.

 

This term is also important for individual freelancers. Are you interested in making a million out of the chatgpt hype or are you looking to build long lasting relationships with established businesses from all over the world? We really have a choice here

Tiffany's avatar
Tiffany S Community Member

Nothing scary about that. New clients are often people looking for specific skills and willing to pay well for them. Clients who frequent Upwork are often trying to staff their businesses with contractors to avoid paying fair wages. Most of my best clients--the ones who have paid $10k+--have been new and unverified when I met them. 

 

Good news for you, though...it seems Upwork is no longer interested in bringing in those great clients looking for highly skilled freelancers. 

Christine's avatar
Christine A Community Member

First if all, fraudsters can and do acquire IDs very easily. There are freelancers regularly saying that a "client" asked them to send a copy of their driver's license or passport, and they willingly handed it over. You could post a fake project and gather up dozens of IDs each and every day. 

 

Second, even a client with a real ID can still do a chargeback. We don't know how many chargebacks are from stolen credit cards, how many are due to people wanting free work, and how many were due to clients who received shoddy or incomplete work and couldn't get a refund any other way. I strongly suspect that many of the chargebacks fall into the latter categories, and ID checks aren't going to stop them.

 

I've seen you say many times that you don't ever work with new clients, and that's your choice. Other freelancers also have this choice. But if I want to work with a new client and I'm willing to take that risk, that should be my choice. I don't want Upwork to do anything that will discourage new cluents from posting projects here. There are too few projects that are worth bidding on as it is. 

Jennifer's avatar
Jennifer M Community Member

“…in certain instances, we will advance payment on a talent invoice if the client issues a chargeback or their payment method is declined. In this circumstance, the talent assigns us the right to recover any funds from the client.”

 

 

Is this payment protection for hourly? Or do they mean when a freelancer withdraws before the chargeback?

Will's avatar
Will L Community Member

I don't think better IDs is as good a solution as requiring clients to use non-reversible payment methods. Most Upwork clients are US-based and they have access to more reliable payment methods without substantial additional hassle (but certainly more hassle than just providing a credit card).

 

Hourly payment protection is available whether the client issues a chargeback or not, before or after the freelancer is paid. But I'd expect Upwork will review the freelancer's TimeTracker time tracked to try to find billed time that isn't covered and claw that back from the freelancer. But if the freelancer has correctly used TimeTracker, the freelancer remains paid in full and Upwork will have to pursue the client for payment to cover the net cost of the chargeback.

 

I expect fixed price chargebacks are very different in this respect. Upwork will claw back from the freelancer the entire amount of the chargeback and the freelancer is on the hook until Upwork is repaid by them. But the amount of such a chargeback is not necessarily part of Upwork's reported transaction losses. 

Alper's avatar
Alper D Community Member

They say theres more talent than needed. Yet i believe someone converting a first time client, someone convincing the client to spend 10 times than what they thought they would, and someone ruining the job and leaving an angry client shouting around in forums all count as "talent" 🙂

 

when a client posts a job, they didnt spend money yet. Its the freelancer who actually makes them "spend" the money.

Maria's avatar
Maria T Community Member

"More talent than necessary"..., I laugh so as not to cry.
They're letting in anyone who knows how to spell their name, and sometimes, not even that.

Jonathan's avatar
Jonathan L Community Member

revenue of $566.6 million (reflecting a 23% increase over 2021).,. The volume of all transactions across the platform was $4.1 billion (a 16% increase compared to 2021)...

 

Interestingly, one client accounted for more than 10% of Upwork’s revenue in both 2021 and 2022.


One client accounted for approximately 102.7 million USD in revenue across 2 years? If that were all freelancer fees (definitely not, because no doubt this is an Enterprise client), that would range between $513.5 million and $2.054 billion dollars in contract payments across 2 years.

 

What a whale!

Alper's avatar
Alper D Community Member

Could it be upwork itself? I think they are also hiring through their own platform

Jonathan's avatar
Jonathan L Community Member

They specified revenue, not gross sales volume. So, no.

Christine's avatar
Christine A Community Member

I think he meant, could Upwork be their own biggest client, i.e. because they hire freelancers for their own needs. But, I seriously doubt it.

Jonathan's avatar
Jonathan L Community Member

“…for the year ended December 31, 2022, provision for transaction losses increased, as compared to 2021, primarily due to increased instances of fraud, higher chargeback losses, and bad debt losses related to Upwork Enterprise clients…and if our chargeback or return rate becomes excessive, card networks may also require us to pay fines or other fees, engage in remediation efforts, which can be costly and divert the attention of management, or cease doing business with us”


I've been reading up on the chargeback system (which has the bonus of learning more about how the US financial system actually operates). I don't pretend to be an expert yet, because there is still a lot that I haven't read (such as some of the laws), but what I've learned from sources like Chargeback911 is eye-popping.

 

  • Everytime a chargeback is initiated by an institution, the Seller has to pay a non-refundable fee to their provider (like VISA) to manage the chargeback. That money is gone forever, even if the Seller wins the chargeback.
  • Sellers can be hit with a chargeback AGAIN after winning the chargeback dispute. Basically, it is an appeal from the Buyer's side. Seller must pay another non-refundable fee.
  • Sellers cannot appeal if they lose.
  • Chargebacks are permitted for both CREDIT and DEBIT card transactions.
  • Institutions have 90 days to decide if they will award a chargeback or deny the request.
  • The final arbiter, in the case of an appealed chargeback, is the provider (e.g. VISA, Mastercard).
  • If a Seller receives many chargebacks, then their provider can choose to penalize the Seller. Penalties include:
    • Increased chargeback processing fees
    • Increased transaction processing fees
    • Increased contract fees
    • Termination of service
  • The laws were written when credit cards were new to the market and had a low percentage of eligible people owning them. The purpose of the laws was to assuage fear of the new credit system, thus stimulating usage.
Will's avatar
Will L Community Member

The important thing for freelancers to know is that their income from hourly work time properly tracked is completely safe from being reversed by Upwork if all requirements for payment protection are met. This is true whatever fraud the client has committed via unjustified chargeback by a "client" or a justified chargeback by the true cardholder's bank. 

 

Upwork's transaction losses include whatever Upwork has had to pay out of its own pocket to cover hourly contract client fraud and whatever amount Upwork is unable to claw back from fixed price freelancer work. Funds returned by fixed price freelancers are not included in Upwork's public reporting of transaction losses, so outsiders have no idea how much such fraudulent "pay" freelancers have had to repay to Upwork.

Jonathan's avatar
Jonathan L Community Member

Except, those judgment decisions are at Upwork's employee's sole discretion. And as some recent posts have demonstrated, the Upwork reviewers can choose to be very vague or outright lie in their published reason when deciding to renege on the Hourly Protection.

Will's avatar
Will L Community Member

Jonathan L.,

 

I don't base my opinion on anything related to Upwork just because other freelancers make complaints here. I don't think we hear the entire story here when freelancers complain about hourly payment protection; we have no way of knowing if they have fully complied with the very precise requirements of payment protection. And there can be no doubt that hourly payment protections against client fraud and dishonesty is far, far more reliable than so-called "payment protection" for fixed price projects.

 

My comments here are based on my own experience with hourly contract payment protection, which has been very good over the past 5+ years and 300+ projects.

Christine's avatar
Christine A Community Member

I don't think that recent posts have demonstrated anything of the kind, and I certainly don't think that Upwork lies to any freelancer for the sake of denying them payment protection. That's a pretty serious accusation.

Jonathan's avatar
Jonathan L Community Member


Christine A wrote:

I don't think that recent posts have demonstrated anything of the kind, and I certainly don't think that Upwork lies to any freelancer for the sake of denying them payment protection. That's a pretty serious accusation.


Christine, you may recall this discussion, since you were part of it. After viewing Zaid's screenshots of his Work Diary, we determined that his memos were not descriptive enough to qualify for Hourly Protection. However, that was not the reason given by Upwork's reviewer, who stated

 

you logged time that had screenshots of you doing non-contract work, we weren't able to verify what you were working on. What we saw were Work Diary screenshots showing work that are not related to the job offer/description.

 

 Zaid's screenshots of his Work Diary are still in his original post. You may view them. I, and others, find the reviewer's cited reason for the decision to be utterly at odds with the facts recorded in the Work Diary. There was a valid reason for denying Zaid's hourly protection, per the ToS, but Upwork cited a different, false reason. To me, that smells of a fast/immediate decision rendered for Upwork's financial benefit without reviewing the facts. In other words, lying to the freelancer for the sake of denying them payment protection.

 

Upwork hemorrhaged money last year. There was (and still is) ample incentive to renege on their promises of payment protection. Do I think all staff do it? No. But I have no doubt that some of Upwork's team managers put pressure to make decisions that minimize Upwork's expenses. For all we know, the percentage of denied Hourly Protection dollars/claims may even be a performance metric - not unlike traffic ticket and arrest quotas.