All right, hello everyone. I'm Andrew Brewer. I cover internet here at Citizens. I'm happy to host Upwork. Hayden and Erica, thank you so much for being here. Very much appreciate the support and the conversation. Today I'm going to organize questions in kind of three groups. We're going to talk about macro, the product, and then kind of finish with profitability. With that, let's kick it off with the first macro question. Help us understand the macro environment and contextualize Upwork's adjusted -4% GSV growth for last quarter. How do we think about the broader freelancer growth across the market in terms of framing that for Upwork?
Sure. I'm sure we both have things to say on this topic. It's a good one. Thank you for having us, Andrew. It's great to have this conversation today. As we look at what's been going on in the broader industry and the economy over the last couple of years, certainly there's a lot of trends that have been impacting the business in a number of different ways. The macro economy tends to be right now very sluggish. We've seen this for multiple quarters now. Interest rates and inflation are definitely weighing on businesses and consumers, and that's causing companies to either pause hiring altogether and really be in a capital conservation mode, or, as we all know, tons of layoffs happening across many different companies and industries. We see this in the JOLTS data, the Indeed Hiring Index on our own platform.
This comes through in some of the leading indicators around hiring growth, which are still negative on a year-over-year basis. The GSV numbers that you shared about last year, Andrew, were definitely lower than we would have wanted, but reflect this macroeconomic trend and actually still reflect outperformance of the staffing industry as a whole. We grew negative 4% on GSV. We were 4% actually on revenue growth, and that was actually 8% adjusted revenue growth, taking account the Sunday effect we have in terms of when payments come through on our platform. That is in comparison to most staffing companies being down double digits. The industry as a whole was down negative 9% overall for the year. What we have seen with this business is whether the economy is good or bad, we continue to outperform the broader industry.
That is partly because of what you were also asking in the second part of your question around what's going on with the freelancer economy. What we see today is 38% of Americans are freelancing, 64 million Americans, and approximately half of them are actually doing knowledge-based work, so kind of skilled knowledge work like technology, marketing, creative design, those types of things. Disproportionately, freelancers are actually becoming younger. 44%-52% of millennials and Gen Z are actually freelancing today, which is a huge population if you think about it. Basically, half of the youngest generations in the workforce are choosing to freelance. This is actually why our platform has such a huge advantage right now and keeps taking share from legacy incumbents.
Because we are a digitally native platform and increasingly an AI-first platform, these younger generations of workers who are the most highly skilled actually want to work in this way that is digital-first, AI-first, that brings them this aggregated set of work opportunities and also helps them manage their entire freelancing careers. This gives us a huge advantage both when the market is down, when the market is good, and is actually going to continue to be a bigger and bigger advantage as the AI piece of the equation comes in, which I'm sure we're going to talk more about today.
Let's talk a little bit about just the visibility that you guys have into macro. I mean, it's certainly a key driver. When do you expect it to start to improve? How does that relate to guidance?
Maybe I'll jump in. Just a couple of things here, right? I mean, first and foremost, I think obviously the last couple of years have been sort of a demand-constrained environment, as Hayden was just talking about. It really is at the very top of the funnel and sort of client demand that we do see some of that constraint. Our client retention has actually been excellent. In Q4, our retained clients were up 8% year over year. Overall, the stability of our platform, as Hayden has talked about, has been much, much better than really anyone else in the human capital industry. Part of that is because of the diversity of our platform, right? We have 125 job categories. For any time when there's sort of perhaps lagging demand in one category, we see resurgence and an upsurge in others.
AI is the best example of that. Obviously, our AI category has been the fastest growing for several quarters now, up 60% year over year in 2024. That growth continues. We see a tremendous amount of stability in our platform in general compared to others, both on volumes as well as just on active client growth, right? We've seen other companies out there down double digits. We've been able to hold pretty steady there over time. We feel really, really good about that. In the most current environment, obviously, with all the volatility that's going on in terms of visibility for the macro, I think things are probably getting worse, not better. I think that has caused us to have appropriate caution as we think about the very, very top-line environment for 2025.
Now, that said, we've been extremely good at kind of managing what we can control in terms of take-rate growth in 2024, ongoing margin expansion into 2024 and 2025. We do anticipate, with all the kind of work that we've got in our funnel for 2025, that we will resume meaningful take-rate growth in 2026.
Okay. One of the bigger themes in terms of the macro environment has been AI in terms of GSV, potential headwinds. You guys have talked about that extensively over the last two years. Just talk about AI as a threat and opportunity for GSV growth.
Yeah, I'd say I've been at this company since 2011, and it also predates me by another decade plus before that. One of the most fascinating things about Upwork's business and our actual fundamental business model has been, through the last 20-plus years, we have served businesses through every type of work rotation and evolution. As new internet businesses were coming online in the early 2000s, as mobile development was becoming a huge thing around the launch of the iPhone in 2007, as businesses were doing mega digital transformation efforts over the last decade and a half, they have consistently come to our platform to find the most skilled individuals to power those transformations in their own businesses. The AI transformation, which is really a revolution in work, is no different.
Businesses today are coming to Upwork disproportionately to find AI-skilled workers, to do model training, to do commercialization of AI technologies, to transform their own marketing and other departments with AI technologies. These are not just for one-off projects. They are actually building what they have always done, which is build new workforces, new programs, ongoing efforts that actually support their goals, using, again, these younger generations of workers who are highly skilled in new technologies, which they cannot typically find in their own house. We have done some recent research on Upwork over the last year plus, which shows Upwork freelancers are adopting AI tools at approximately five times the rate of in-house corporate employees. We hear this consistently from businesses that are coming to our platform, saying, "Look, my AI projects are off track. They are behind. I cannot find the talent I need.
I'm coming to you, Upwork, to solve this skills gap because I can't find these people in my own workforce or through my traditional hiring channels. We have a long history of serving businesses through these types of transformation efforts. Today, the AI thematic is really important for us, both in this respect, where, as Erica was just mentioning, we are seeing AI as our fastest growth skill category. Freelancers in this area are earning 44% more on average than freelancers in non-AI skill-related areas of our platform. We saw more than 40% of our clients coming to the platform last year with new needs in these types of areas. This is a huge opportunity for us. We're also doing a lot to transform our own business into a truly AI-native platform.
We have always been technology-first, a digital business, but now we are infusing AI into the core of how our talent and our clients are getting work done. That is actually powering advancements in our flywheel, conversion metrics, speed metrics, a bunch of things on the platform that we see already happening in the last couple of quarters as we have launched our Mindful AI Uma, which is the AI agent that is increasingly helping talents and clients get work done on our platform. We will be doing more and more over time to be a full-blown agent companion that can execute work tasks on behalf of and in line with partnership with freelancers getting work done.
There's a huge thematic for us here, really, and we have an advantage that no one else in the industry has, which is our size and scale of our data asset, the amount we can invest in R&D, including the two acquisitions in the AI space, which we made in the last 15 months. All of this has really put us in an incredible position to execute on the AI opportunity for this business.
All right, let's transition a little to product and also follow up in terms of what you just said there.
Sure.
On AI, and you just mentioned Uma, help us understand AI as a tool in terms of improving Upwork's ability to connect freelancers to employers.
Yeah. Uma, we launched in April of last year as basically the first version of an agent that can come into specific workflows. For example, on the client side, Uma can now draft a job post for clients just based on a single sentence, write the entire post, add skills, add all kinds of specificity around that. We're seeing more than 70% of new clients coming in using Uma. It's also getting them through that step in our funnel 70% faster. It is doing a great job there. It is also showing impact in terms of our highest value jobs for new clients filling 8% higher. That is a great impact for us in terms of our business. That is just one example. Uma can also do things like draft job proposals for talent.
It can recommend for clients which of the folks in their talent pool who've applied for a position are actually the best suited and make very specific recommendations around why based on the client's specific needs, what they've asked for, et cetera. These are some places where Uma is already showing up in the product and having really great impact. Again, this is just the beginning because these are kind of point interventions where Uma is really helping clients and talent get work done.
Our vision over time is that as Uma becomes more capable and is launched across all aspects of both the talent experience and the client experience, Uma is an always-on work companion who can really enable the full funnel of activity that's happening, including starting to do things like prototyping work, getting things off the ground, project managing, and really doing so much more because, again, our platform isn't just about matching. It's really about matching and enabling the full end-to-end work product. We have a number of partnerships and other things with, again, AI tools providers and others that we're integrating into that Uma ecosystem so that the talent and the technology work seamlessly to really deliver the work outcome that clients are looking for.
I would just add that we're really one of the only companies out there that has the ability to truly enable AI-related work on the platform and AI enablement of the future of work. Because of the tremendous data asset that we have with our business, we've been in business nearly 20 years. Because of this asset, we're really one of the only companies out there that has the data to train these models in order to enable this next phase of AI-enabled work.
I understand the liquidity side in terms of improving buyer selection, right? That definitely came through in that answer. What about on the freelancer side? How is AI changing the process for freelancers?
AI is really important because freelancers actually, what they want from us is, number one, freelancers in the economy as a whole, they want to earn more money, and they want to spend less time doing the thankless work around sourcing projects, around proposing them for work, and more time on the work itself. Obviously, when they're doing that work, they want to do the best parts of that work and delegate more of the least sexy parts of that work to the tools that are increasingly capable of doing that. This is really where AI can help in all of those things.
When AI can do more around tailoring proposals, looking at their work history, their experience, and providing them with a first draft that they can edit that is really showing and shining their best foot forward in terms of an opportunity, that's something that Uma can already do today. Increasingly, as Uma can do things that help them get the work off the ground, write proposals that have all the milestones of the project embedded, and then again, remind them on things like, "Hey, have you followed up with this client? Is it time to check in on this?
Is this a tool you might want to use?" Because again, Upwork, because we have this bird's-eye view across so much work happening in any single job category, talent are really looking to us to say, "Hey, of all these tools that are launching, of all these tools that are being adopted, which one should I pay a subscription for, or which one should I learn to use to become better at marketing or design or development?" There is just so much noise. We can actually see in the data, freelancers using these tools are becoming more productive. They are winning more work. They are delivering higher quality outcomes, and clients are spending more money with them. Use these tools, not these tools. We are embedding those types of both insights and tools themselves into the product.
This becomes a huge flywheel for us in terms of giving great data insights that are very sticky and attractive, that are unique to our ecosystem, to talent who are really thirsty for those insights. Their other options are going and reading a Reddit thread or talking to some people at a water cooler and being like, "Guys, what are you using?" We can use data to really inform their choices and make it fast, easy, and delightful for them to do that and have it integrated into the work they're doing already on our platform.
Transitioning to enterprise. Enterprise has changed pretty drastically over the last couple of years for Upwork. Just talk about the bigger opportunity, right? There is a trillion-dollar labor market that is out there. What is the vision for enterprise and talk to us tactically. How do you execute on that?
Yeah. Andrew, this is, you're right, it's a huge opportunity. We have always been the best positioned in our space to win in this area. The work we did over the last year has really laid the groundwork for the strategy we're executing this year and into 2026, which will drive 2026 performance and beyond. Let me recap. Last year, we made some big changes to how we're approaching the enterprise opportunity. We installed a new leader who has staffing market experience, Ernesto Lumayna, who's now leading this area of the business. With his leadership and some product market testing that we were doing, we launched a new plan in the enterprise space, although it sits on the back of our marketplace product and is recognized as marketplace revenue, but it really is the transition plan between marketplace and what was our historic, very large enterprise product.
It's now kind of this mid-market plan called Business Plus. Business Plus has some of the features and functionality of our enterprise product, but kind of a lighter-weight version of that offering at a higher price point than the marketplace and is a joint kind of self-service and sales-fed approach that lets us really attack a much larger volume of enterprise customers with an offering that's right in the sweet spot of what they're looking for. We launched that in October. It's already got more than 1,000 customers in that plan and is growing, and we're seeing really nice performance there. We also did some work last year to right-size our sales team. We focused a smaller number of reps on our highest-performing, highest-potential clients, and that actually was one of the things that contributed to our stronger-than-expected performance in Q4.
We saw our enterprise business growing 4%, our managed services business 12%. We are seeing some really good things around the unit economics of that business as we have really kind of retooled that approach. Heading into this year and 2026, we are continuing to expand on the product suite. We have Business Plus now in the lineup, and we are looking at what else we might add in terms of the product expansion opportunities there. We have some very strong perspectives on what that could look like. We are continuing to work with some specific partners and partnership opportunities that we started last year.
We have our sales team extremely focused and dedicated on what is working in terms of retaining and expanding larger customers who are already in our pool and that we are now growing through this new Business Plus offering, which again is a really great kind of large funnel. There is a lot that is now working enterprise, and we are expecting that 2026 performance to really be lifting off.
Erica, let's try you on this one.
Sure.
Let's switch to ads.
Yeah.
The question is, what inning do you think we are in terms of ads monetization?
This is one of our favorite topics. We're going to have to.
We're in the very, very early phases. I mean, Hayden referenced a few things on ads and monetization. Ads and monetization revenue stream for us has been, I guess, our second fastest growth revenue stream after the AI work category. We're in the very early phases, right? Our ads products are kind of typical ads products. Freelancers can pay to boost their proposals to clients. We just launched our first client-side ads product in Q4. There's much, much, much more runway to go there. We also have only one freelancer-side subscription product today called Freelancer Plus. We've seen very nice growth out of that product, but it's our only product out there today. There's a tremendous opportunity. If you can imagine, we have this huge population of millions of freelancers that's very, very attractive to AI tools providers and others.
We have the opportunity to bundle up some of these products and offer them at a kind of preferred access to our freelancers and partner with a lot of these guys out there. We are at the very beginning of this. To Hayden's point on Business Plus, Business Plus is our first client-side premium take-rate product that we just launched in October. Yes, it has gotten great penetration. 1,000 clients have adopted it so far, 1,000 plus. We have 830,000 clients on our platform. This is very, very, very early stage. We have opportunities to add more tiers beyond that. If you look at us on a take-rate point of view, we have made a lot of progress in 2024 on take-rate.
We expect with all the products in development this year that we're going to have a little bit less take-rate accretion this year, but we're setting ourselves up for very meaningful take-rate accretion in 2026. Super excited about all the irons in the fire that we've got here.
Let's double-click on a couple of pieces of that. Freelancer Plus has certainly been a successful product in terms of driving monetization. Talk about the levers in terms of continuing that momentum going forward. And then just to make sure I didn't miss that, talk about the potential for kind of revenue share or affiliate revenue that may come from the suggestion of third-party products.
Right.
What would that look like?
Freelancer Plus, the product we have out in the market today, is essentially a subscription product, and freelancers get access to Upwork Chat Pro, which is a ChatGPT-like product for our freelancers. The opportunity is, I mean, this is just the beginning. To Hayden's point on our ability to kind of see which tools our freelancers are using and which tools are enhancing the work that they do every day, I mean, we see the demand across job categories. What clients want is they want a human in the loop. They want people out there who can enable them, who can answer questions and get the work done for them. They want freelancers who are using these AI tools and the newest things that are out there. We can provide, through partnerships, preferred access to these tools as we see the demand come for them.
That's what we're working on right now, is bundling some of these other opportunities.
Let's kind of bring that all together, right? You've been here long enough in terms of Upwork. 20% growth was just very stable kind of pre-COVID. Talk to us about the ability to be able to get back to that level, right? What are the various components that you need to happen to be able to get there? Is that still kind of the right benchmark that we should think about in a more normalized environment?
Yeah. Our current strategy is really focused on what we see as these three significant growth areas. It's AI, which has both the talent-side growth and the platform-enabled growth. Enterprise, which is a huge opportunity. We're looking at a $200 billion staffing TAM, which we've just barely scratched the surface of. And we're looking at this ads and monetization opportunity, which Erica was just enumerating. All three of those we know can start to accelerate growth in 2026 and definitely get us back to double-digit growth in coming years. When the macro improves, that will be yet another accelerant on top of that. All of our strategies that I outlined are not contingent on the macro improving. These are things that we think can perform even in the current environment if we're to continue to be as sluggish as it has been.
As we look in the past, we've seen Upwork outperform the staffing industry by 15 percentage points in the last three years and 20 percentage points in the last six years. We have an incredible track record of doing that. Again, we feel great about this strategy we have to execute into this growth-forward future, even when the macro may not be helping this business at all.
Staying on the demand-side topic, but transitioning partners somewhat. You guys have done a great job in terms of partnering with other services in terms of recommending Upwork freelancers. Can you talk about your progress with that and maybe how that strategy evolves kind of over the next two, three years?
Yeah. One of the exciting things about where we are today is we've started to experiment with some partnerships that really bring Upwork and our offering out into the ecosystems of other kind of SaaS businesses and companies that have ecosystems of businesses because we tend to be a demand-constrained business. They have businesses who are looking for talent and solutions that we serve every single day in our environment. By bringing our offering into their environment as something that could be in a checkout flow or that they're co-marketing into their customer base, those customers, those end clients don't have to separately come to Upwork, set up an account, go through our process.
Instead, they could just do like a one-click buy or an embedded purchase along with something they're buying from that provider, whether it's like a GoDaddy or some other business, and purchase Upwork services right alongside of whatever other offering they're already buying. This is very early days of us experimenting with this strategy. We have a handful of partners who are kind of, excuse me, are kind of early adopters of this new model. The concept is, if you're familiar with buying like a Lowe's TV and someone comes and installs it for you, for those sellers for like a Lowe's, it actually increases order conversion. It increases customer retention. It increases average cart size. We think for our business, no one has done this in the services industry.
We can do something similar, bringing highly valued knowledge workers into contexts where people are buying SaaS subscription services, business tools, et cetera. Really, they're not getting the service layer around that that they need, especially for kind of like mid-market and smaller businesses. We can implant Upwork talent and Upwork offerings into those buying flows and really give kind of a full-service offering that helps both the sellers of those SaaS providers and our own Upwork talent in the process. It is early days, and we're still building into that strategy, but there's a lot of potential there.
All right. Erica, 35% EBITDA margin target that you guys have laid out. Help us understand that within the current macro environment. Can you guys get there? And then just maybe, is there a broad bridge that we should think about in terms of achieving that?
Sure. Last year, at the beginning of 2024, we put out a 35% EBITDA margin target within five years. In about six quarters, in Q4, we reported 26% margin. We have made tremendous progress in a very short amount of time with a lot of kind of discipline and focus with our business. We guided to kind of 2025 EBITDA margins in the 25%-26% range. I just enumerated a number of our take-rate opportunities. We have a lot of opportunities. We have ongoing cost optimization opportunities, both in R&D. We have actually barely touched G&A so far. There is a lot of optimization to go on the bottom line. We also have a lot of take-rate opportunities, as I have talked about.
Between the two of those, we, of course, have modeled out lots of scenarios in an environment that remains very unstable from a demand point of view. We fully expect to resume GSV growth as well to kind of help boost it. We actually do not need GSV growth to get to our 35% target. To the extent that GSV growth comes back faster, we will just get there faster. We are very confident that we have a very clear road to the 35%.
All right. Last question. Capital allocation, right? Talk to us about use of cash going forward.
Yeah. We're in such a great position with our business from a profitability growth point of view. And our EBITDA converts to free cash flow at about, call it, 80%. We've got a great trajectory here. Hayden outlined the kind of very discreet, very focused set of organic investment opportunities that we're investing in. We do see inorganic growth opportunities both in enterprise and in continued AI enablement. We've been really successful in kind of very inexpensive, very small tech and talent acquisitions to enable our AI roadmap. We'll continue to look to do that with some of our balance sheet. The rest, last year, we used about 70% of our free cash flow to buy back stock. We've committed to remaining offsetting any dilution from SBC with stock buyback and opportunistically reducing our share count. You'll see us doing that as well going forward.
Great. Thank you so much for participating. We appreciate it.
Thank you.
Thank you, Andrew.