Upwork cuts full-year forecast as AI pressures its marketplace

Upwork shares fell sharply after the freelance marketplace cut its full-year guidance, overshadowing a second-quarter earnings beat and reviving concerns that AI is eroding the work it brokers.

The stock dropped as much as 21% in after-hours trading on Monday and closed on Tuesday down about 15% at $8.39.

The company reported second-quarter revenue of $191.7m, down 2% year on year but ahead of expectations, with adjusted EBITDA up 12% to $64.1m and non-GAAP earnings of $0.41 a share.

It was the guidance that unsettled investors. Upwork cut its full-year revenue forecast from a range of $760m-$790m to $730m-$750m, and guided third-quarter revenue to $176m-$184m, below a consensus near $194m.

Two figures underneath the results explain the caution. Gross services volume, the total value of work transacted on the platform, fell to $966.4m, down around 4%. Active clients fell 4% to 763,000.

Chief executive Hayden Brown attributed the shortfall to “a faster pace of AI-related automation, continued weakness in the labor market and further deterioration in Google SEO”.

Upwork’s counter-argument is that AI-related work is its fastest-growing segment, running at a roughly $330m annualised rate, up 22%, with an AI consulting subsegment up around 50%.

The company has also launched an integration allowing AI agents in Claude, ChatGPT and Cursor to hire human freelancers directly.

Brown argued that AI is splitting the market rather than eliminating it, with clients hiring freelancers to finish or fix work started with AI tools. Management disclosed that around 10% of gross services volume faces adverse exposure to AI-driven shifts.

The tension runs through the results. The same technology driving Upwork’s fastest-growing revenue is also blamed for eroding its core marketplace, where routine tasks such as basic writing, translation and simple coding are increasingly automated.

Gross services volume per active client rose to a record, suggesting the clients who remain are spending more on higher-value work even as the total number falls.

Analysts cut their price targets regardless. Needham held its Buy rating but lowered its target from $15 to $11, Goldman Sachs went from $17.50 to $11.50, RBC from $9 to $8 and Scotiabank from $10 to $8.

Upwork shares have lost more than half their value this year and trade near a 52-week low of $7.44, against a high of $22.84.

Fiverr reported two weeks earlier with revenue down 10% and active buyers down 22%, and its shares fell around 20%. Both marketplaces described the same pattern: fewer customers, each spending more.

Moreover, a study by Xiang Hui and Oren Reshef of Washington University and Luofeng Zhou of New York University, conducted on Upwork’s own data, found that writing-related freelancers saw monthly jobs fall 2% and earnings 5.2% after the release of ChatGPT, while image-related freelancers lost more.

Upwork cut about 145 roles, a quarter of its workforce, in May, three months before these results. Restructuring charges of $13.8m were recognised in the quarter.

The company has repositioned around that shift, promoting AI consulting and enterprise services and building tools that place freelancers alongside AI systems rather than in competition with them. Whether that is enough to offset the decline in routine work is the question the guidance cut left open.