Upwork Responds to Claims of Poor Execution: Possible Impact on Freelancers

Engine Capital, an Upwork investor that owns about 4% of the company, released a critical open letter to Upwork’s Board of Directors last week, outlining its concerns about the company’s performance.

Major Concerns Raised

The letter, while assuring the board of Engine Capital’s belief in the company’s overall unrealized potential sounded the alarm on a variety of concerns.

Those concerns included:

• A Lack of Strategic Clarity and Focus
• Ineffective Execution
• Poor Capital Allocation
• A Revolving Management Team
• Board Oversight Issues
• Underperformance
  

“We invested in Upwork because of its promising position as the world’s largest work marketplace... and our belief that the Company is deeply undervalued,” read Engine Capital’s letter. However, they expressed disappointment with Upwork’s performance, stating: “We believe the Company has a great deal of potential that is unfortunately not being realized. This is due to Upwork’s lack of strategic clarity and focus, ineffective execution, poor capital allocation, and revolving management team under CEO Hayden Brown.”

The letter also questioned the board’s oversight, saying: “We also question whether the Board is appropriately holding senior management accountable for its numerous missteps.” They added that Upwork has “underperformed relevant indexes and its closest public peer, Fiverr.”

Upwork responded to the letter shortly thereafter, saying: “Upwork’s Board of Directors and management team maintain an open dialogue with and value constructive input from investors... and appreciate their perspectives, as we do those of all our shareholders.” 

Upwork also defended its progress, noting: “We have significantly improved profitability, with adjusted EBITDA margins expanding from (2)% to 21% over the past five quarters.”

In that same response, Upwork also highlighted its cost-cutting efforts, stating: “We have taken significant steps and are continuing to optimize our cost base, including discontinuing brand marketing.”

Recent Changes at Upwork

Upwork has recently made a variety of updates to its platform, with some changes being more popular than others. Among these changes were the termination of the freelance feedback removal program, the removal of phone-based human customer service for freelancers, the removal of RSS feeds, and the introduction of a “Connects fee” for freelancers who respond to client invitations to apply.

The Connects fee decision was later reversed after freelancers voiced concerns.

CEO Hayden Brown’s Stock Sales

It is also worth noting, though unrelated to the letter, that Upwork CEO Hayden Brown recently sold company shares as part of a pre-arranged trading plan. On September 16, 2024, she sold 20,000 shares for around $200,000. Two days later, she sold another 9,444 shares for about $100,000. These sales were part of a plan she set up in December 2023, which allows insiders to sell shares on a pre-determined schedule.

How All of This Could Impact Freelancers

Freelancers may wonder how this investor pressure will affect them. While public companies are often somewhat beholden to their investors and more open to public scrutiny than their privately run counterparts, Upwork doesn’t necessarily have to respond to Engine Capital’s concerns with immediate action.

That said, Engine Capital is applying public pressure for Upwork to cut costs, which could mean fewer features or services for freelancers. Changes like the removal of phone-based customer service for freelancers could be a sign of more cuts to come.

Engine Capital also wants Upwork to focus more on big businesses, which could lead to fewer overall jobs on the platform but an increase in larger, higher-paying jobs. This shift could result in Upwork adopting a more selective, high-end approach similar to the premium freelancer marketplace TopTal.

On the upside, if Upwork improves its performance, freelancers might see a stronger marketplace with better opportunities.

Either way, change is likely on the horizon for Upwork and its users. 

What do you think about Engine Capital’s open letter and recent shakeups at Upwork? Let us know in the comments below.