Upwork's Q3 2025 Earnings Call: Contradictions Emerge on AI Integration, Acquisition Revenue, Freelancer Demand, and Enterprise Strategy

Date of Call: November 3, 2025

Financials Results

• Revenue: $201.7M, record quarterly revenue
• Gross Margin: 77.3% in Q3 2025
• Operating Margin: 29.6% adjusted EBITDA margin, record high

Guidance:

• Revenue for Q4 2025 expected to be $193M to $198M.
• Q4 adjusted EBITDA expected to be $49M to $52M (25%–26% adjusted EBITDA margin).
• FY2025 revenue raised to $782M to $787M; FY adjusted EBITDA raised to $222M to $225M (~28% margin at midpoint).
• FY2025 non-GAAP diluted EPS expected $1.35 to $1.37 (≈30% increase at midpoint vs 2024).
• Guidance includes incremental costs related to Ascen and Bubty acquisitions and temporary Lifted integration; long-term adjusted EBITDA margin target reiterated at 35%.

Business Commentary:

* Revenue Growth and AI Integration: - Upwork reported revenue of $201.7 million in Q3, reaching a record high for the company. - The growth was driven by AI-related projects and enhancements to the Upwork platform, including improvements to the Uma AI tool.

• GSV Growth and Enterprise Expansion:
• Upwork's GSV grew 2% year-over-year in Q3, marking a return to growth after a period of headwinds.

• This was attributed to increased adoption of AI technology and enterprise expansion, including the launch of the Lifted subsidiary.

• Productivity and Hours per Contract:

• Hours per contract increased for the fourth consecutive quarter, with a 12% year-over-year increase in Q3.

• The increase was driven by more complex and long-term projects, particularly in the AI and SMB segments, despite expectations that AI could be a headwind.

• Margin Improvement and Cost Management:

• Upwork achieved a record adjusted EBITDA margin of 29.6% in Q3, marking a significant improvement over the previous year.
• The improvement was due to disciplined cost management and strong performance across revenue and profitability.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 a "turning point," reported record revenue of $201.7M, GAAP net income of $29.3M (+6% YoY), record adjusted EBITDA $59.6M and 29.6% margin, and raised full-year revenue and adjusted EBITDA guidance while highlighting 2% YoY GSV growth and accelerating AI-related demand.

Q&A:

• Question from Eric Sheridan (Goldman Sachs Group, Inc., Research Division): Given that you now have some period of time with integrating the assets you acquired on the enterprise side, can you talk a little bit about the key early learnings of integrating those assets and how investors should be thinking about your enterprise offering in total mixture of both organic and inorganic growth developing as you look out to 2026 and beyond?
  Response: Management is pleased with acquisition progress, expects customer migrations to Lifted in early 2026, is seeing strong top-of-funnel interest and multimillion-dollar RFP invitations, and expects meaningful GSV impact starting H2 2026 and accelerating into 2027.

• Question from Sang-Jin Byun (Jefferies LLC, Research Division): Great to see the acceleration on the AI-related GSV. Wondering if you could drill down into what some of the drivers are? Is it just a broader market tailwind? Or is awareness improving? Any specific initiatives there? And then is there any also to quantify the contribution from the 2 acquisitions in the Q3 or the updated guidance?
  Response: Core drivers are rebuilt search/recommendation stack and product features (e.g., Boost Your Profile, Uma); AI features drove the $100M incremental GSV estimate; Bubty and Ascen are expected to contribute roughly $5M of revenue in H2 2025 while marketplace organic growth also contributed.

• Question from Matthew Condon (Citizens JMP Securities, LLC, Research Division): Can we just get an update just on what you're seeing as far as freelancer demand and how that progressed throughout the quarter? And then my second one is just on AI driving meaningful improvement to the liquidity in the marketplace. Just is there an upper limit to how far that can go? Just how much further do you think that these AI improvements can further drive GSV growth as we think about the rest of this year and into 2026?
  Response: Macro was stable in Q3; the recent GSV growth is driven by company initiatives (AI, SMB products) and management expects further Uma integrations in 2026 that will unlock additional end-to-end AI benefit and accelerate GSV next year.

• Question from Bernard McTernan (Needham & Company, LLC, Research Division): The press release mentions using agentic talent sourcing for Business Plus. Is it available for the rest of the marketplace? Or is that something that we should be expecting to be coming later? And then second, for Erica, just wondering if we could get some directional commentary just given the investment in Lifted in '26, should we still expect margins to be up year-over-year, acknowledging that we'll probably get more of this at the Investor Day in a couple of weeks?
  Response: Uma Recruiter (agentic sourcing) is currently Business Plus–only; team may offer variants to basic later while other AI features are already in basic; Lifted-related investments are expected to dilute margins by ~2 percentage points in 2026 but management remains committed to the 35% long-term margin target and expects overall margin progression over time.

• Question from Marvin Fong (BTIG, LLC, Research Division): I would love to just understand better the drivers. I mean 4 quarters in a row, hours per contract increased 12%. Could you just kind of share with us your thoughts on what's driving that? And in particular, I'm interested, you would think that AI would be sort of an efficiency driver and could actually be a headwind to hour per contract. Are you seeing at all any kind of differential between AI-related growth and non-AI growth and then impact on the hours per contract and that trend?
  Response: Hours per contract are rising because Upwork is attracting higher-value, more complex AI and Business Plus engagements—AI projects spend ~3.5x and Business Plus ~3x typical spend—so AI is increasing spend per contract rather than reducing hours.

• Question from Marvin Fong (BTIG, LLC, Research Division): In these bids for Lifted, who are you competing against and what are the key criteria differentiating Lifted versus traditional competitors?
  Response: Lifted expands eligibility to the full contingent-work spectrum (EOR, temp staffing, etc.); management says competitors are niche, while Lifted's full-stack digital, global talent pool and modular integration differentiate them and drive RFP invitations despite multi-quarter sales cycles.

• Question from Joshua Chan (UBS Investment Bank, Research Division): On your kind of future GSV type of comments, what's backing your confidence behind even an accelerating level of GSV growth in 2026? And nearer term in Q4, depending on assumptions, it seems like guidance may not assume much GSV growth. Is that accurate and what's the thinking behind that?
  Response: Confidence stems from multiple drivers (accelerating AI category, Business Plus runway and new marketing); Q4 guidance is conservative due to normal seasonality and the suspension of legacy enterprise sales this year, with Lifted impact expected late 2026.

• Question from Joshua Chan (UBS Investment Bank, Research Division): Is the current level of free cash flow generation sustainable? Any unusual items this year? And will you continue routine share buybacks?
  Response: FCF conversion is roughly a run-rate ~85% of EBITDA with quarter-to-quarter working capital variability; management expects strong ongoing FCF and will continue to be buyers, having already surpassed offsetting stock-based compensation dilution in 2025.

• Question from Ronald Josey (Citigroup Inc., Research Division): I want to ask a little bit more about the variable freelance fee testing. Any categories where this works better and thoughts into 2026? And then another question on the Uma Proposal writer, the 15% uplift in generated proposals—conversion impact?
  Response: Dynamic (variable) freelancer fees had minimal impact in Q3 and remain in early, category-specific tests with broader rollout planned in 2026 to influence both take rate and GSV; Uma Proposal Writer improved proposal generation (+15%) and conversion/matching, contributing to the $100M incremental GSV impact.

• Question from Bradley Erickson (RBC Capital Markets, Research Division): Talk about balancing sales & marketing leverage and margin expansion versus product investment for 2026, and latest views on ChatGPT and other chatbots as customer acquisition channels?
  Response: Management will moderate margin expansion in 2026 to fund organic growth opportunities while preserving a profitable base; LLM/chatbot channels are early but convert at higher rates and are being actively tested as promising acquisition channels.

Contradiction Point 1

AI Integration and Revenue Impact

It involves expectations and impacts of AI integration on the platform, which could influence strategic decisions and revenue forecasts.

What are the drivers behind the acceleration in AI-related GSV, and could you quantify the contribution of the Q3 acquisitions or the revised guidance? - Sang-Jin Byun (Jefferies LLC)

2025Q3: The biggest driver is from rebuilding our search and recommendation stack, leveraging AI innovations. Other features like Boost Your Profile were also impactful. The AI-related category grew by 53% in Q3. - Hayden Brown(CEO)

Can you elaborate on strategies to increase GMV and expand the take rate in upcoming quarters? - Maria Ripps (Canaccord Genuity Corp.)

2025Q2: The AI category grew 30% year-over-year, and we believe we can achieve and exceeding $80 million to $100 million in GSV uplift from AI and customer experience enhancements this year. - Hayden Brown(CEO)

Contradiction Point 2

Revenue Contribution from Acquisitions

It concerns the expected revenue contribution from recent acquisitions, impacting business outlook and strategic evaluations.

Could you identify the key drivers behind the acceleration in AI-related GSV and quantify the contribution of the two Q3 acquisitions and the updated guidance? - Sang-Jin Byun (Jefferies LLC)

2025Q3: The acquisitions of Bubty and Ascen are consistent with the Q2 outlook, contributing $5 million to revenue in the back half of this year. - Erica Gessert(CFO)

Can you explain how the acquired assets, Bubty and Ascen, will function after integration into the Upwork platform and how revenue and GSV will be reported? - Joshua K. Chan (UBS Investment Bank)

2025Q2: The acquisition of Bubty and Ascen are consistent with the previously provided guidance and are expected to contribute $5 million and $3 million in revenue, respectively, for the full year 2025. - Erica Gessert(CFO)

Contradiction Point 3

AI Impact on Freelancer Demand and Growth

It relates to the impact of AI on freelancer demand and growth, which are crucial for understanding future business performance and strategic direction.

What are your observations on freelancer demand, and can AI improvements further drive GSV growth? - Matthew Condon (Citizens JMP Securities, LLC, Research Division)

2025Q3: Demand is stable. AI is a tailwind, not a headwind. It's driving more demand for contingent work as AI fractionalizes traditional work. This quarter, AI-related work grew by 53% year-over-year. - Hayden Brown(CEO)

What are the base case economic assumptions and expected changes in client activity and growth for the remainder of the year? How does AI affect new client growth, volume, and pricing? - Eric Sheridan (Goldman Sachs)

2025Q1: Our marketplace posted record performance across multiple dimensions. We're also benefiting from several new AI features like Uma and Boost Your Profile that are driving greater client engagement and spend. [...] I am particularly excited about our AI initiatives. AI-related work grew by 25% year-over-year, and AI features like Uma are improving key metrics like proposal volumes and hiring rates, enhancing business growth. - Hayden Brown(CEO)

Contradiction Point 4

Enterprise Growth Strategy and Market Focus

It involves the company's strategy for enterprise growth and market focus, which are key to understanding future business direction and market positioning.

Can you discuss the key early learnings from integrating enterprise assets and how investors should view the organic and inorganic growth mix in your enterprise offerings through 2026 and beyond? - Eric Sheridan (Goldman Sachs Group, Inc., Research Division)

2025Q3: We're really pleased with the progress with these acquisitions. We're seeing stronger-than-expected top-of-funnel interest from new and existing customers and are invited for large multimillion-dollar RFPs. The strategy is expected to start impacting revenue growth in the back half of next year and continue into 2027. - Hayden Brown(CEO)

Is large client spending growth driven by market shifts or strategic changes? - Bernie McTernan (Needham & Co.)

2025Q1: We believe that our strategy of unlocking spend from larger customers positions us to take a greater share of contingent work and is demonstrated by our strategic wins and increased traction with large enterprise clients in Q1. - Hayden Brown(CEO)

Contradiction Point 5

AI Integration and Impact on Business

It reflects differing perspectives on the impact of AI on business operations and growth, which is crucial for understanding the company's strategic direction and future performance.

What is the current demand for freelancers, and can AI advancements further drive GSV growth? - Matthew Condon (Citizens JMP Securities, LLC, Research Division)

2025Q3: AI is a tailwind, not a headwind. It's driving more demand for contingent work as AI fractionalizes traditional work. This quarter, AI-related work grew by 53% year-over-year. - Hayden Brown(CEO)

What are the factors driving your revenue guidance and how is AI impacting your business? - Maria Ripps (Canaccord)

2024Q4: AI-related work, those include development, testing, and design work, grew 60% in the year and 93% in Q4, while demand for these skills continues to grow. - Hayden Brown(CEO)