Upwork Inc.

despite the kind of stabilization we're seeing right now, we have prudently forecast through the rest of the year some ongoing deterioration in marketplace trends just given the rapidity of change that we saw at the end of Q1. So, you know, we do feel that we have worked into our outlook some additional kind of deterioration and conservatism just given the volatility of the trends. I'd also just emphasize We do continue to see strength in the growth pillars that we've identified. We're excited about it, lifted the SMB growth with GSV up 34% quarter-over-quarter for Business Plus. All of these also give us some very good contraindicators to some of the weakness we saw at the lowest end.

Got it. Thank you very much for the call. Thank you. Our next question will come from Matt Condon of Citizens Bank. Your line is now open.

Thank you so much for taking my questions. My first one is just on, were there any new categories that were impacted by AI in the quarter? Was there any shift in the actual category impact? And then, you know, I know that it's 10% today, but, you know, as model capabilities continue to improve, you know, what gives you the confidence that that 10% is not going to go to 15% and 20% here in the future? And then a follow-up to some enterprise, you know, along the AI lines as well, like what makes you or gives you confidence that, you know, enterprise clients aren't going to lean more heavily on their internal workforces with AI versus needing to go, you know, outside to the freelancer platforms such as Upwork for external talent, just given the efficiency and productivity gains from AI. Thank you. I'm reading now.

Sure. So on the category side, there really were no big changes in the quarter. I would say, you know, the thing that we would continue to focus on is the AI work category, which is a tremendous bright spot for us. It keeps growing above 40% year over year, and really the leading indicators there are even more promising. We saw in the quarter that 11% of our job posts were in the AI category, even though GSV, which is more of the lagging metric, was only at 8% from that category. So we're going to be capturing more and more of this opportunity going forward. Stepping back into your question about why do we feel good about this 10% kind of boundary around where our exposure is now, there's a few reasons for that. First of all, the reason we have an updated number is really the methodologies that came out in the last few months from folks like Anthropic and Stanford gave us an opportunity to revise our approach and incorporate some factors that were not previously available. And that's where we really broke down all of the jobs in our marketplace to their sub tasks that contribute to getting those jobs done and then we classified every task as whether it could be automated or not and that is the exercise that led us to see that 10 of our gsv today is in jobs with tasks that theoretically can be automated uh depending on the capabilities of you know different ai tools uh deployed so you're right to question like, okay, where does this go from here? And actually the good news is that all of the trends that we're seeing and the strategies we're executing are what really reduce our exposure over time. So first of all, We've seen in both the old methodology and in this new methodology that the trend has been consistent, that our exposure to AI automation has actually been diminishing, and it was down significantly this quarter versus last year ago, even though there was some acceleration, because these tasks are basically burning off the platform, and the residual work is AI-insulated. So that's just a reality of what's been happening and what happened in Q1. Also, we see that enterprise, as an example into your question, is one area where we actually have a very clear AI tailwind in the pipeline. 20% of the opportunities we're looking at are in contention for today are actually due to AI work. And so we're really not seeing any indicator that enterprises are turning more inwardly. In fact, it's quite the opposite. They're looking for skilled and capable both vendors and teams to come in and help them with expert work, and that's what we're doing for them. Then we've got helpful areas like our SMB program. That is really attracting larger, more complex projects that are AI insulated. And that's why we've been investing in this for several years now. And we're seeing great growth with 34% GSV growth in that product, just in quarter over quarter. Finally, as the mix shift in our business continues to evolve, we just have less exposure because, again, these AI projects categories that are growing so quickly are taking up more and more of our mix and represent a very insulated part of the business. The final thing I'd say is that the AI strategies we're deploying, like launching human supervised agents in our marketplace, this really gives us another way to keep spend on our platform, even as it gets automated, because the humans on our platform are the ones supervising agents doing that work and the funds flow through us in that instance. So That product is launching later this year. It's live and testing now. So the market is absolutely going to keep evolving. We're sharing all the insights we have today and really have the confidence given our growth levers that each of them is really positioning us to minimize AI exposure and expand our market opportunity as we move forward.

Very helpful call. Thank you.

Thank you. Our next call, Carl. Question comes from the line of Bernie McTermin from Needham and Company. Your line is now open.

Great. Thanks for taking the questions. Maybe to start acknowledging that 40% growth for AI work is still, you know, obviously extremely robust, but it is a slight slowdown from the 50% growth last quarter. Just was first wondering what the underlying trends that you're seeing there. And then second, you mentioned leveraging data, and I think But can you just talk more about that data opportunity within AI? I think you mentioned job posts and leveraging all that information that you have, but can you just maybe expand upon that? And then third, I think we normally get it in the presentation, but I don't see it. But if you could just provide the marketplace take rate, that would be helpful. Thank you.

Sure. Let me start on the AI growth. We feel really good about the trajectory of this. The volume of customers looking for AI work on our platform is is growing and growing. And, you know, this is an extremely dynamic space. So of course, there are going to be quarter to quarter fluctuations. But Q1 this year was growing faster than Q1 last year, even though that's on a bigger base. We also see these really strong leading indicators I mentioned around our job post mix shift is increasingly AI related work. And that's, you know, that this is just a giant market that's just growing. And frankly, Businesses are still waking up to the fact that they need to deploy these new technologies and that Upwork is the place to find that talent. And that's what we see in these indicators. It's really getting traction. To your question around the AI data opportunity, we think this could be a very meaningful opportunity for us. As AI data needs are evolving, and we see this across the ecosystem where it's going from these kind of synthetic and static data sets towards more real-time learning scenarios. I think a good example of this is what Meta just announced in the last few weeks around tracking computer activity inside their own organization. There is a real need for companies to have more of these environments to deploy agents within to learn and to access the data that is generated from work activity actually happening end to end. So we've been approached by numerous players on this topic. We know we have a unique role to play with 3 million job posts per year and more than 125 categories. And I'd say we're just in the early stages of exploring what this could look like in a way that is value additive for our customers and for our business. And so, you know, it's too soon to say what exactly that will look like, but we've got some conversations and pilots in flight, and anything we do end up doing here will be incremental to our current outlook.

Hey, Bernie, and just to answer on the marketplace, take rate question is 19.4%. Great.

Thank you both.

Thank you. Our next question will come from the line of Brianna. Kamadoom from UBS, your line is now open.

Good afternoon. This is Brianna Kamadoom. I'm for Josh Ting. Just a couple questions on my end. I guess, can you explain how the restructuring came about? What's changed from three to six months ago to now? And then I have a follow-up.

Sure. You know, this is something where We have, I think, quite a track record of really disciplined cost management and efficiency in this business. And we've been on that path for several years now. And so as we've continued to see those plans come to fruition, some of the multi-quarter initiatives around automation in our own business, which I know we've shared with you guys, have been making a lot of progress. And as we saw market conditions getting a little bit more choppy, this was the right time to make these changes, both to ensure we are delivering everything we want to be delivering on the profitability side, but frankly, also just to make sure we're leaning into every opportunity to be more nimble, more fast moving. We've seen benefits as we've made kind of similar changes in the past and have really unleashed faster innovation cycles in the business. And we have that opportunity now. So these are tough decisions because they do impact you know, our people in a meaningful way, but we know they're the right ones to set up, work up for the next chapter.

Yeah, thank you for that. And then last question, are you seeing non-AI GSB decelerating at an accelerating pace? And if so, where may that be? Thank you.

Hey, Brianna. Yeah, look, if you really take a step back and kind of look at the dynamics on the platform, where we're seeing the deceleration is really with the very small businesses on our platform. And as we've talked about with our growth pillars, enterprise pipeline is super strong. The SMB kind of work that we've done on the platform to attract larger customers above kind of 50 employees and more is really continuing to grow and improve. So where we've seen the weakness is really in very small businesses, which are most affected in this macro environment, where wallets get tight, both for them and for consumers. And then below that, where we're seeing it is in the smallest contract types.

And I'll just add to that, we've done some really extensive work to talk with these customers, you know, survey our landscape and understand, you know, what's going on behind these changes. And just to underscore what we've shared, you know, that the things they're telling us are things like, you know, cost of living is up. So people are buying, you know, food and gas, not the products I sell, or, you know, I work in a business that's automotive related and tariffs and government decisions have created a lot of volatility, so I'm spending less. There's just a ton of these stories coming into us about how businesses are just getting more cautious. And again, these are the very smallest businesses in the economy. So when things change, they really feel it and they have to make decisions. And I think that's what's been flowing through to what we shared in terms of the trends at the end of the quarter.

That makes sense. Thank you. Thank you for taking my question.

Thank you. This does now conclude the question and answer session. We thank everyone for your participation in today's conference, and it does conclude the program, and you may now disconnect.