Upwork is earning more from a smaller marketplace

Upwork's Q3 net income rose 8% to $31.8 million even as revenue fell 8% to $185.6 million and spending through its platforms declined. Reported operating expenses fell 15%.

Most of the cost reduction replaced lost gross profit

Research by Ticker Byline shows that roughly three quarters of the $19.4 million fall in reported operating expenses offset lower gross profit. The remaining $4.8 million became an increase in operating profit.

Research and development accounted for the largest reduction in expenses. Upwork had cut its workforce by about 20% by September 30 under a restructuring plan announced in May. Lower share-based compensation also helped the reported cost comparison.

Adjusted EBITDA reached $63.8 million, above the $50 million to $54 million range Upwork forecast in August. The measure removes interest, taxes, depreciation, amortization and selected other costs, including restructuring and acquisition expenses.

Fewer clients, higher spending per client

The total value transacted through Upwork's services fell 10.1% to $914.1 million. Marketplace revenue, the largest source of sales, declined 9%.

Upwork had 717,000 clients who had spent money through its services in the preceding 12 months, down from 794,000 a year earlier. Spending per active client over that same rolling year increased 8%, but the client base became smaller.

The company attributed pressure on client acquisition and retention to changes in how people use AI, weaker organic search traffic and economic uncertainty. It expects those pressures to continue through the remainder of 2026.

A bigger enterprise business, a lower Q4 range

Upwork's Lifted subsidiary completed the $129.7 million cash acquisition of WorkMotion on October 30. The German business provides employment services for companies hiring workers across borders.

Upwork expects the deal to strengthen its enterprise offering and reduce reliance on outside employment-service providers. The quarter included $5.7 million in costs related to the purchase.

Upwork raised its annual revenue outlook to $742 million to $750 million from $730 million to $750 million, and its adjusted EBITDA range to $236 million to $240 million from $225 million to $235 million.

Its Q4 forecast is lower than the latest quarter: revenue of $169 million to $177 million and adjusted EBITDA of $51 million to $55 million.

The Upwork company profile follows client activity, earlier forecasts, cash flow, debt repayment and the completed workforce-services acquisitions.