Upwork's Q3 2025 Earnings Call: Contradictions Emerge on Enterprise Strategy, AI Recruiting, GSV Growth, and Margins

Date of Call: November 3, 2025

Financials Results

• Revenue: $201.7M (record quarterly revenue; first time >$200M)
• EPS: Full‑year non‑GAAP diluted EPS guidance $1.35–$1.37, ~+30% at midpoint vs 2024
• Gross Margin: 77.3% in Q3

Guidance:

• Q4 2025 revenue expected $193M–$198M.
• Q4 adjusted EBITDA $49M–$52M (adjusted EBITDA margin 25%–26%); includes Ascen/Bubty and integration costs.
• Full‑year 2025 revenue raised to $782M–$787M; adjusted EBITDA $222M–$225M (~28% margin at midpoint).
• Full‑year non‑GAAP diluted EPS $1.35–$1.37 (~+30% at midpoint vs 2024).
• Reiterated long‑term adjusted EBITDA margin target of 35%; Lifted expected to dilute margins ~2ppt in 2026 and be accretive in 2027.

Business Commentary:

Revenue and Profit Growth:* - Upwork reported record revenue of $201.7 million for Q3 2025, marking the first time in company history surpassing $200 million. - The company also achieved a record GAAP net income of $29.3 million and an all-time high in adjusted EBITDA at $59.6 million, with an adjusted EBITDA margin of 29.6%. - This growth was driven by initiatives that rewired the business for the AI era, leading to a 2% year-over-year growth in GSV and increased demand for AI-related projects.

• AI Integration and Impact:
• GSV from AI-related work increased by 53% year-over-year in Q3, up from 30% year-over-year growth in Q2.

• The increase was attributed to investments in transforming the Upwork marketplace into an AI-native platform, improving search and recommendation capabilities, and expanding AI projects on the platform.

• Customer Growth and SMB Strategy:

• Active clients on Upwork Business Plus grew by 36% quarter-over-quarter in Q3, contributing to a 5% year-over-year increase in GSV per active client.

• This growth was driven by the success of targeted AI customer experience and product innovations, making Upwork an 'AI equalizer' for SMBs navigating the AI landscape.

• Enterprise Expansion and Lifted Subsidiary:

• Upwork's new subsidiary, Lifted, launched with strong customer reception, positioning the company to provide comprehensive contingent work solutions for enterprises.
• This expansion is expected to contribute significantly to GSV growth, with early signals indicating strong demand and increased multimillion-dollar RFP opportunities.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management called Q3 a "turning point," reporting "$201.7 million in revenue," "GAAP net income of $29.3 million," record adjusted EBITDA $59.6M and adjusted EBITDA margin 29.6%. They raised full‑year revenue and adjusted EBITDA guidance and noted a return to GSV growth (+2% YoY), highlighting AI/product wins and Business Plus adoption as drivers of momentum.

Q&A:

• Question from Eric Sheridan (Goldman Sachs Group, Inc., Research Division): Early learnings integrating enterprise acquisitions and how investors should think about organic vs inorganic growth into 2026 and beyond?
  Response: Early indicators strong: heightened top‑of‑funnel interest and invitations to multimillion‑dollar RFPs; customers will be migrated to Lifted in early 2026 and management expects meaningful GSV impact starting H2 2026 with acceleration into 2027.

• Question from Sang‑Jin Byun (Jefferies LLC, Research Division): What are the drivers of AI‑related GSV acceleration vs broader tailwinds and how much did the two acquisitions contribute in Q3/updated guidance?
  Response: AI GSV acceleration is driven mainly by rebuilt search/recommendation and AI product features (Uma, Boost Your Profile) — management cites ~$100M incremental GSV contribution in 2025 from these improvements; Bubty/Ascen contributed roughly $5M revenue in H2 2025.

• Question from Matthew Condon (Citizens JMP Securities, LLC, Research Division): Update on freelancer demand through Q3 and how much more runway exists for AI improvements to drive marketplace liquidity and GSV into 2026?
  Response: Macro was stable in Q3; GSV growth came from executed initiatives (AI and SMB). Management expects substantial additional upside as Uma is further integrated across workflows in 2026, which should enable GSV acceleration next year.

• Question from Bernard McTernan (Needham & Company, LLC, Research Division): Is agentic talent sourcing available beyond Business Plus and directional margin commentary given Lifted investment in 2026?
  Response: Uma Recruiter (agentic sourcing) is currently a Business Plus‑only feature with potential future variants for broader tiers; Lifted is expected to dilute margins by ~2 percentage points in 2026 but management remains committed to the 35% long‑term adjusted EBITDA margin target.

• Question from Marvin Fong (BTIG, LLC, Research Division): What's driving sustained hours per contract growth and is AI a headwind or tailwind; and who are you competing with on Lifted RFPs?
  Response: Hours per contract rise reflects higher‑value, more complex AI and Business Plus projects (AI jobs spend ~3.5x typical); AI is a net tailwind, not a suppressor; Lifted expands competition into staffing/EOR but differentiates via a full‑stack, global, digital platform.

• Question from Joshua Chan (UBS Investment Bank, Research Division): What's behind confidence that GSV will accelerate in 2026 and why might Q4 guidance not assume much GSV growth?
  Response: Multiple internal growth drivers (accelerating AI category, low Business Plus penetration with recent marketing, product features) underpin confidence; Q4 guidance reflects normal seasonality and managed‑services seasonal slowdown, while Lifted impact is expected later in 2026.

• Question from Joshua Chan (UBS Investment Bank, Research Division): Is current free cash flow generation sustainable and will share buybacks continue as a routine capital allocation?
  Response: Yes — management expects roughly ~85% conversion of EBITDA to free cash flow as a run rate with some quarter variability; they intend to remain active buyers and have continued buybacks (surpassed offsetting dilution in 2025).

• Question from Ronald Josey (Citigroup Inc., Research Division): Update on variable freelancer fee testing (dynamic pricing) and the Uma Proposal writer's impact on conversion (15% uplift)?
  Response: Dynamic pricing had minimal take‑rate impact in Q3 and is early stage, applied selectively by category with broader rollout planned in 2026 to both raise take rate and stimulate demand; Uma Proposal writer improves proposal quality and conversion and is a contributor to the cited $100M incremental GSV.

• Question from Bradley Erickson (RBC Capital Markets, Research Division): How do you balance sales & marketing leverage/margin expansion with product investment in 2026 and views on ChatGPT/LLMs as an acquisition channel?
  Response: Management will moderate margin expansion in 2026 to invest in organic growth while preserving long‑term margin goals; LLM/chatbot channels are early but show high intent and conversion, and the company is actively testing and leaning into those channels.

Contradiction Point 1

Enterprise Strategy and Acquisitions Impact

It involves differing expectations and timelines for the integration and impact of acquisitions on the company's enterprise strategy, which could influence investor expectations and financial planning.

What are the key early insights from integrating enterprise assets, and how should investors view your enterprise offering? - Eric Sheridan (Goldman Sachs)

2025Q3: In 2025, we acquired Bubty, Ascen, and Lifted, adding significant capabilities in workforce management, contingent W2 work, AI recruiting and upskilling, and an innovative platform to help businesses build and manage high-performing flexible workfaces. These acquisitions are immediately GSV and revenue accretive in 2025. - Hayden Brown(CEO)

Can you explain the acquired assets, their integration and functionality, and how revenue and GSV will be generated? - Joshua K. Chan (UBS)

2025Q2: These acquisitions are immediately GSV and revenue accretive in 2025, contributing a small revenue benefit in late 2025. The enterprises have long sales cycles, with significant GSV and revenue growth expected in late 2026. - Erica Gessert(CFO)

Contradiction Point 2

AI Recruiting and Business Plus Offering

It highlights differing perspectives on the availability and benefits of AI recruiting features, which are crucial for the company's competitive positioning and customer segmentation.

Is agentic talent sourcing available to the broader market? Can margins increase year-over-year despite increased investment? - Bernard McTernan (Needham & Company)

2025Q3: AI Recruiting, which is included in Business Plus and available via Enterprise Direct, uses AI to help identify, reach out, and engage top-rated freelancers. AI Recruiting was live in 30% of Business Plus clients who actively sourced talent in the quarter. - Hayden Brown(CEO)

How have new customer usage of the platform and mature cohort behaviors evolved? - Jared Grant Osteen (ROTH)

2025Q2: Additional features in our Business Plus offering will include AI Recruiting, which will be available to all Business Plus clients, and AI Matching, which will be available to all Top Rated freelancers. - Hayden Brown(CEO)

Contradiction Point 3

AI Category and GSV Growth

It involves the growth expectations and impact of AI-related work on GSV (Gross Service Volume) growth, which is a critical metric for Upwork's financial performance.

What drives AI-related GSV growth? What is the contribution of acquisitions to Q3 or the updated guidance? - Sang-Jin Byun (Jefferies LLC, Research Division)

2025Q3: $100 million from AI features, like Boost Your Profile. AI category grew 53%, showing potential. - Hayden Brown(President, CEO & Director)

How is Business Plus evolving and impacting new clients? How does the company's cost guidance affect sales and marketing? - Andrew Boone (Citizens)

2025Q1: We saw 25% growth in AI-related GSV last quarter, which is a meaningful contribution to our top line. We expect that to continue to grow. - Hayden Brown(President and CEO)

Contradiction Point 4

Variable Freelance Fee Testing

It involves the timing and impact of variable freelance fee testing, which could influence Upwork's revenue model and financial performance.

What is the effectiveness of variable freelance fee testing? How is the Uma Proposal writer performing? - Ronald Josey (Citigroup Inc., Research Division)

2025Q3: Variable fee testing early, contributes incremental revenue. Expect broader launch in 2026. - Erica Gessert(CFO & Interim Principal Accounting Officer)

What are the key search and recommendation improvements and their business impact? How has the go-to-market strategy change impacted client acquisition? - Ronald Josey (Citi)

2025Q1: We are just starting to test the variable fee structure with a small amount of freelancers and are pleased with the early results. - Erica Gessert(CFO & Interim Principal Accounting Officer)

Contradiction Point 5

Margins and Lifted Investment

It involves expectations for margin dilution due to investments in the Lifted platform, which impacts Upwork's financial performance and strategic priorities.

What supports your confidence in accelerating GSV growth by 2026? What are the assumptions for Q4 GSV growth? - Joshua Chan (UBS Investment Bank, Research Division)

2025Q3: Lifted investment expected to cause 2 pp margin dilution in '26. - Erica Gessert(CFO & Interim Principal Accounting Officer)

When will AI-driven growth drive overall GSV expansion, and what are the expectations for take rate and EBITDA? - Rohit Kulkarni (ROTH Capital Partners)

2025Q1: We expect our investments in AI, Uma and Lifted, our platform modernization effort to continue to drive innovation and growth in 2025. - Hayden Brown(President and CEO)