In a bold move reflecting deep concerns about Upwork's trajectory, Engine Capital has urged the freelancing platform to revitalize its board and implement decisive measures aimed at enhancing shareholder value. This appeal comes on the heels of Engine Capital disclosing a 3.5% stake in Upwork, a position that underlines its vested interest in the company’s future.
"Upwork possesses immense potential that, regrettably, remains untapped," asserted Arnaud Ajdler, founder and managing member of Engine Capital, in his correspondence to the board. Ajdler attributed this stagnation to several critical factors: a lack of strategic clarity and focus, ineffective execution, poor capital allocation, and a revolving door concerning management, particularly under the leadership of Chief Executive Hayden Brown.
Highlighting the systematic issues, Ajdler pointed out that despite the substantial investment exceeding $780 million in research and development since 2019, Upwork's platform continues to grapple with numerous functionality problems. He underlined a troubling trend: many freelancers and employers are abandoning the platform due to frustrations stemming from its complexity.
Ironically, feedback from former Upwork employees indicated a preference for the more intuitive user experience offered by Fiverr. As it stands, Upwork did not respond to inquiries from MT Newswires regarding the investor's letter. On a different note, Upwork's shares witnessed an uptick of 8.3% during Friday's trading session; however, the year-to-date performance reveals a stark decline of 32%.
Last month, the company reported adjusted earnings of $0.26 per share for the second quarter, an increase from $0.10 in the same period last year, while revenue grew by 15% to reach $193.1 million. Ajdler's letter further emphasized the instability plaguing Upwork's senior management team, noting, "Brown is now effectively operating under her third management team in a span of four years." He recommended a thorough rejuvenation of Upwork's board, advocating for the introduction of new independent directors.
While acknowledging the valuable contributions of the current venture capital investors on the board, he pointed out that their funds are no longer stakeholders in Upwork, rendering their prolonged tenures counterproductive. Engine Capital has called for a declassification of Upwork’s board structure, thereby granting shareholders the opportunity to elect directors annually.
Furthermore, Ajdler advised the board to promptly initiate and execute new share repurchase programs while the stock remains undervalued. He recognized an enormous potential for growth within Upwork’s enterprise business and suggested that a concentrated focus on fewer initiatives and a merger of its enterprise and marketplace divisions could lead to significant improvements in the cost structure.
"Upwork stands at a pivotal juncture," Ajdler cautioned. "The board must swiftly enact essential changes to afford Upwork a real chance for success, or the platform risks becoming increasingly obsolete." Price: 10.12, Change: +0.81, Percent Change: +8.65.