Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<ul>
<li>On October 1st, 2018, Upwork announced that it planned to raise the IPO offering to 12.3 million shares at a price range of US$12 to US14 per share. The Upwork IPO is currently scheduled to start trading on 3 October. </li>
<li>
What should be the appropriate valuation multiple for Upwork? We believe that Upwork's valuation multiple should be higher than <a href="https://www.smartkarma.com/entities/18733" target="_blank" data-smartkarma-citation="entities:18733:1">Freelancer Ltd (FLN AU)</a> (4.7x) but lower than the average P/S multiples of Spotify, Eventbrite, and Survey Monkey (10.1x). Given Upwork's higher global market share as well as greater sales and cash flow than <a href="https://www.smartkarma.com/entities/18733" target="_blank" data-smartkarma-citation="entities:18733:1">Freelancer Ltd (FLN AU)</a>, there should be a higher valuation premium for Upwork compared to Freelancer. We think that many investors will likely narrow down the valuation multiple range to about 6-8x using P/S multiple for Upwork, which would also be similar multiples for Spotify. </li>
<li>
Valuation Sensitivity Matrix for Upwork: Using our estimated 2019 sales of US$309.3 million as the base case and applying a range of P/S multiples (6-8x) suggests implied market cap ranging from US$1.9 billion to US$2.5 billion. Our base case scenario is the mid-point of US$2.2 billion in implied market cap for Upwork, using 7x P/S multiple. This would also suggest a base case share price of US$20.80 per share (assuming 104.1m common shares outstanding post IPO offering). The current mid point of the IPO range is US$13 per share and our base case scenario of US$20.80 would suggest a 60% upside. 
</li>
</ul>


On October 1st, 2018, Upwork announced that it planned to raise the IPO offering to 12.3 million shares at a price range of US$12 to US14 per share. The Upwork IPO is currently scheduled to start trading on 3 October. 

What should be the appropriate valuation multiple for Upwork? We believe that Upwork's valuation multiple should be higher than Freelancer Ltd (FLN AU) (4.7x) but lower than the average P/S multiples of Spotify, Eventbrite, and Survey Monkey (10.1x). Given Upwork's higher global market share as well as greater sales and cash flow than Freelancer Ltd (FLN AU), there should be a higher valuation premium for Upwork compared to Freelancer. We think that many investors will likely narrow down the valuation multiple range to about 6-8x using P/S multiple for Upwork, which would also be similar multiples for Spotify. 

Valuation Sensitivity Matrix for Upwork: Using our estimated 2019 sales of US$309.3 million as the base case and applying a range of P/S multiples (6-8x) suggests implied market cap ranging from US$1.9 billion to US$2.5 billion. Our base case scenario is the mid-point of US$2.2 billion in implied market cap for Upwork, using 7x P/S multiple. This would also suggest a base case share price of US$20.80 per share (assuming 104.1m common shares outstanding post IPO offering). The current mid point of the IPO range is US$13 per share and our base case scenario of US$20.80 would suggest a 60% upside. 



Upwork IPO Preview (Part 2) - Valuation Analysis

<ul class="">
<li>
Upwork is getting ready for an IPO on the NASDAQ market in the coming weeks. Upwork provides the largest online platform globally that enables businesses to work with freelancers for various kinds of services. The company enabled US$1.56 billion of gross services volume (GSV) in nearly 2 million projects at more than 180 countries around the world as of 12 months ended 30 June 2018. </li>
<li>There are many popular services provided by the freelancers on the Upwork platform including data science and analytics, graphic design, sales, and mobile development. Companies benefit from using Upwork by reducing the time and costs associated with seeking talent and contracting formal work. Upwork provides freelancers with a lot of benefits including helping to find quality part-time work as well as making payment, communication, and invoicing more efficient.</li>
<li>The indicative IPO price range is between US$10 to US$12 per share. Upwork plans to sell 12.27m shares (not including greenshoe option of 1.02 million) in this IPO. As such, the company is planning to raise between US$123 million to US$147 million. Upwork will have 104.1 million shares post IPO and its initial market capitalization is expected to be between US$1.04 billion to US$1.25 billion.</li>
<li>Upwork faces stiff competition for its core services of freelance related work. Fiverr and Freelancer.com are mentioned as the company's competitors as online platform providers of freelance work. Some of the key competitors in the traditional part-time staffing services include The Adecco Group, Randstad, Recruit, ManpowerGroup, and Robert Half International. LinkedIn and GitHub are also major competitors as online companies that provide various products and services. </li>
</ul>



Upwork is getting ready for an IPO on the NASDAQ market in the coming weeks. Upwork provides the largest online platform globally that enables businesses to work with freelancers for various kinds of services. The company enabled US$1.56 billion of gross services volume (GSV) in nearly 2 million projects at more than 180 countries around the world as of 12 months ended 30 June 2018. 
There are many popular services provided by the freelancers on the Upwork platform including data science and analytics, graphic design, sales, and mobile development. Companies benefit from using Upwork by reducing the time and costs associated with seeking talent and contracting formal work. Upwork provides freelancers with a lot of benefits including helping to find quality part-time work as well as making payment, communication, and invoicing more efficient.
The indicative IPO price range is between US$10 to US$12 per share. Upwork plans to sell 12.27m shares (not including greenshoe option of 1.02 million) in this IPO. As such, the company is planning to raise between US$123 million to US$147 million. Upwork will have 104.1 million shares post IPO and its initial market capitalization is expected to be between US$1.04 billion to US$1.25 billion.
Upwork faces stiff competition for its core services of freelance related work. Fiverr and Freelancer.com are mentioned as the company's competitors as online platform providers of freelance work. Some of the key competitors in the traditional part-time staffing services include The Adecco Group, Randstad, Recruit, ManpowerGroup, and Robert Half International. LinkedIn and GitHub are also major competitors as online companies that provide various products and services. 


Upwork IPO Preview (Part 1) - The Largest Global Online Platform for Freelancing Services

United States

Company Description

Upwork Inc. provides online recruitment services. The Company offers jobs in the categories such as website developers, virtual assistants, sales and marketing experts, accountants, and consultants. Upwork serves customers in the United States.

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Upwork Inc (UPWK US)

Upwork IPO Preview (Part 2) - Valuation Analysis

On October 1st, 2018, Upwork announced that it planned to raise the IPO offering to 12.3 million shares at a price range of US$12 to US14 per...

Douglas Kim

Upwork IPO Preview (Part 1) - The Largest Global Online Platform for Freelancing Services

Upwork is getting ready for an IPO on the NASDAQ market in the coming weeks. Upwork provides the largest online platform globally that enables...

Douglas Kim

Price Gauge

52-week Range

Market Cap (USDm)

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