Issue #28

Are You Missing Out? ZIP & UPWK Are Trading at a 20% Discount

Hiring is in a strange place: budgets are tight, full-time roles are scarce, and yet the work keeps piling up. That’s creating two very different plays for investors. Upwork (NASDAQ: UPWK) is leaning into an AI-powered, on-demand talent model that lets companies scale work without headcount bloat. ZipRecruiter (NYSE: ZIP) is a high-beta bet on the U.S. hiring cycle—when the “Great Freeze” thaws, job postings and paid employers can snap back fast.

👉 Want structural growth from an AI + freelance marketplace built for flexible budgets? (UPWK)
​ 👉 Prefer a cyclical rebound play primed for operating leverage when hiring reaccelerates? (ZIP)
​ 👉 Or looking to barbell both—defensive flexibility now, upside torque later?

In this edition, we break down Upwork vs. ZipRecruiter—how each makes money, where they’re gaining (or waiting), and what catalysts matter most heading into Q4 earnings. Let’s dive in. — two under-$5 energy stocks taking different paths to Q4 profitability. Let’s dive in.

💻 Upwork (NASDAQ: UPWK)

Upwork is a leading global work marketplace that connects businesses with independent talent, operating at the center of the accelerating "gig economy" and the future of work. The company's platform serves as a vital bridge, allowing businesses—from small entrepreneurs to Fortune 100 enterprises—to access specialized skills on demand, while providing freelancers with opportunities for remote, flexible work across a vast array of disciplines.

Business Model and Revenue Streams 💼

Upwork's business model is a classic two-sided marketplace that generates revenue from both clients (employers) and independent talent (freelancers), with a focus on incentivizing long-term relationships.

• Core Revenue Streams (Service & Transaction Fees): Upwork's primary source of income is service fees charged to freelancers based on their lifetime earnings with a specific client. This tiered, sliding-scale model is a key feature:
• 20% fee on the first $500 billed with a client.
• 10% fee on billings between $500.01 and $10,000.
• 5% fee on billings exceeding $10,000.
  This structure is designed to reward sustained, high-volume client-freelancer engagements, ensuring Upwork's revenue scales with the value created. Clients are also charged a 3% payment processing fee for payments made to freelancers.
• Subscription & Value-Added Services: Upwork offers premium tiers for both sides of the marketplace:
• Client Solutions: Paid subscription plans for businesses (Client Plus, Upwork Business, and Enterprise) offer enhanced features like reduced fees, dedicated account managers, and access to premium talent pools.
• Freelancer Solutions: Freelancers can purchase Connects (tokens used to submit proposals for jobs) and premium memberships (Freelancer Plus) for greater visibility and tools.
• Strategic Expansion: The company has launched subsidiaries like Lifted, a purpose-built solution to handle larger-scale, full-spectrum contingent workforce needs for enterprise organizations, which aims to capture a larger share of high-value, recurring contracts.

Impact of Current Macroeconomic Policies

Upwork's business is highly sensitive to the global macroeconomic environment and corporate spending on labor.

• Macroeconomic Headwinds: Periods of high inflation and rising interest rates (driven by central bank policies like the Fed's rate hikes) can lead to cautionary spending by corporate clients, resulting in a temporary slowdown in overall revenue growth (GSV) as businesses cut budgets or defer projects. Upwork's stock price and client spending are directly exposed to this uncertainty.
• A Silver Lining: Paradoxically, a slowing economy and large-scale staff reductions can increase the demand for cost-effective, flexible, part-time work provided by freelancers. Companies may turn to platforms like Upwork for project-based needs to maintain operational efficiency without the overhead of full-time staff.
• AI Integration: Upwork's focus on integrating AI capabilities across its platform (e.g., matching algorithms, new AI tools) is a strategic response to these macro shifts. It positions the company as a key enabler for businesses looking to leverage AI-enabled talent and tools to drive greater operational efficiency.

Recent Performance and Corporate Developments 📈

Upwork has concentrated on improving profitability and operational efficiency, a pivot that has resonated with investors despite slower revenue growth.

Recent Financial Highlights (Q2 2025):

• Strong Profitability: The company has reported a significant improvement in profitability, achieving a GAAP net profit and sharply rising Adjusted EBITDA margins. This focus on efficiency has been a key driver for the stock's recent momentum.
• Revenue Momentum: Revenue growth has been slower but resilient (e.g., 0.93% revenue growth reported in Q1 2025), which the company aims to offset with higher margins and enterprise sales.
• AI-Driven Growth: The company is actively investing in and promoting its AI-driven strategies to capture the growing demand for AI specialists and tools, which management views as a major future growth catalyst.

Strategic Initiatives and Mergers:

• No recent mergers or major acquisitions have been reported.
• Key Corporate News: Recent news centers on strategic operational moves:
• Launch of Lifted: A focused effort to deepen penetration into the high-value Enterprise segment.
• Share Repurchase Program: Upwork announced an additional $100 million share repurchase program (September 2025), a sign of management's confidence and commitment to returning value to shareholders.
• AI Focus: Monthly hiring reports show a rising demand for human-centric skills that combat "AI Workslop," indicating that AI is amplifying the need for high-quality human skills, a narrative that benefits Upwork's premium talent base.
• Upcoming Earnings: Upwork is scheduled to report its Q3 2025 financial results on November 3, 2025.

Profitability and Fair Value 🎯

Upwork's financial narrative is defined by its transition from a pure growth story to a sustainable, profitable growth model.

• Profitability: The company has demonstrated its ability to achieve GAAP net profitability. Its path to sustained profit is rooted in:
• Operational Efficiency: Continued cost management and expense optimization to expand operating leverage.
• High-Margin Services: Increasing the mix of revenue from high-margin services like subscriptions and Enterprise solutions (Lifted).
• Fair Value Assessment: As of recent analyses, Upwork's stock is generally considered to be undervalued by a notable margin, according to common valuation models:
• Intrinsic Value: Analysts have cited fair value estimates ranging from $19.54 to $23.68, suggesting a significant upside from a recent market price (around $16.00-$17.50).
• Valuation Rationale: The stock's current price is viewed by some as lagging behind its recent margin improvements and the potential of its enterprise and AI initiatives.

Analyst Estimates and Ratings 📊

Consensus Rating: The overall consensus rating from analysts is a "Moderate Buy."

• Recent Ratings: Upwork has a strong showing of Buy and Hold ratings, with a general trend toward optimism driven by its profitability gains and strategic initiatives.
• Price Target: The average 12-month price target is approximately $19.42 to $20.30, representing a potential upside of 20.5% or more from recent prices.
• High Target: The highest analyst price target is set around $27.00 - $28.35.

Investor-Focused Takeaway: Is UPWK Right for Your Portfolio?

Upwork presents an attractive opportunity for investors looking for exposure to the secular growth of the global gig economy and the integration of AI in the workforce. The company has made a successful pivot toward profitability and margin expansion—a key factor for long-term investors.

What to Watch in the Near Term: 📈

• Q3 2025 Earnings (Nov 3): This report will be critical, particularly for the company's guidance and updates on the growth of its Enterprise segment (Lifted) and the adoption rate of its AI tools.
• Client Spending: Monitor overall client spending (GSV) as a gauge of how macroeconomic policies are truly impacting corporate budgets for contingent labor.

Recommendation:

Upwork (UPWK) is viewed as a "Moderate Buy" or undervalued stock by a majority of analysts. Its strategic focus on higher-margin Enterprise clients and AI integration positions it well to capture long-term growth in the future of work, despite short-term volatility from global economic uncertainty.

🧊 ZipRecruiter (NYSE: ZIP)

ZipRecruiter operates one of the leading online employment marketplaces, primarily focused on the domestic U.S. market. The company distinguishes itself through its proprietary AI-driven matching technology, which actively distributes job postings across thousands of job boards and social networks, then proactively sends ideal candidate profiles to employers. This model is designed to optimize time-to-hire by quickly matching the right job seekers with the right openings.

Business Model and Revenue Streams 📦

ZipRecruiter's business model is fundamentally an online advertising and subscription model centered on employers paying to post jobs and access its vast network of job seekers.

• Subscription/Job Posting Fees: The primary revenue stream comes from employers (ranging from small and midsize businesses to large enterprises) who pay for job posting packages. These packages are generally offered as subscriptions or pay-per-job models that allow employers to quickly post, distribute, and manage listings.
• Smart Technology Revenue: The company’s core value proposition lies in its AI and smart matching technology. Revenue is highly dependent on employers seeing a strong return on investment (ROI) from the platform's ability to quickly find quality candidates.
• Value-Added Services: ZipRecruiter continues to explore new, value-added services for both employers and job seekers. A notable recent addition is Breakroom, a feature launched to provide job seekers with real workplace insights, which could pave the way for future monetization through enhanced data or premium access.

Impact of Current Macroeconomic Policies

ZipRecruiter's performance is highly correlated with the overall health of the labor market and employer hiring sentiment, making it particularly vulnerable to macroeconomic slowdowns.

• "The Great Freeze": Current macroeconomic uncertainty—driven by factors like sticky inflation, interest rate hikes, and geopolitical risks—has led to a cautious hiring environment, which ZipRecruiter economists have dubbed "The Great Freeze." This phase is characterized by:
  • Low Turnover: Both workers and employers prioritize stability, leading to sharply reduced employee turnover.
  • Cautious Hiring: Businesses hold onto existing staff ("job hugging") but defer new hiring plans, especially for discretionary roles. This directly reduces the demand for ZipRecruiter's core paid job posting product, leading to revenue declines.
• Monetary Policy Headwinds: While the company is profitable on an Adjusted EBITDA basis, a sustained soft labor market, which is often a goal of contractionary monetary policy (rate hikes), will continue to weigh on its Paid Employer count and Revenue per Paid Employer.
• The Coming "Great Thaw": Management is optimistic that pent-up demand for growth and anticipated policy easing (like potential Federal Reserve rate cuts) will lead to a "Great Thaw" and a subsequent ramp-up in hiring, a scenario that would greatly benefit the company.

Recent Performance and Corporate Developments 📈

ZipRecruiter has been managing through a challenging hiring market by prioritizing efficiency and using capital to signal confidence.

Recent Financial Highlights (Q2 2025): 💰

• Revenue Decline: Quarterly revenue for Q2 2025 was $112.2 million, which was an improvement over Q1's sequential decline but still represented a year-over-year decrease (down approximately 9.24% YoY from Q2 2024).
• Profitability: The company continues to demonstrate Adjusted EBITDA profitability ($9.3 million in Q2 2025, an 8% margin) and has been effective at managing costs, though it still reports a GAAP net loss ($9.5 million in Q2 2025).
• Sequential Momentum: A key positive noted by the CEO is the sequential growth in Quarterly Paid Employers since Q4 2024, reinforcing the belief in a modest return to year-over-year growth in the future.

Strategic Initiatives and Mergers: 🤝

• Share Repurchase Program: In a major show of confidence, the company announced a $100 million increase to its share repurchase program in August 2025. This strategy of investing in its own stock is a common action taken when management believes the company's equity is undervalued.
• Product Innovation: The launch of Breakroom (August 2025) highlights a focus on enhancing the job seeker experience and increasing user engagement, which is critical for attracting and retaining the quality talent that employers pay for.
• No recent mergers or acquisitions have been announced.
• Upcoming Earnings: ZipRecruiter is scheduled to report its Q3 2025 financial results on Wednesday, November 5, 2025.

Path to Profitability and Fair Value 🎯

ZipRecruiter is already focused on delivering strong Adjusted EBITDA, with a clear path to sustained GAAP profitability once the labor market normalizes.

• Path to Sustained Profitability: The company has an impressive gross profit margin (in the high 80% range), meaning its path to profitability hinges almost entirely on recovering revenue growth and leveraging its fixed cost base. The projected "Great Thaw" in the labor market is the most critical factor here.
• Fair Value Assessment: Based on a variety of analyst and valuation models, ZipRecruiter appears to be undervalued at its current price:
  • Intrinsic Value: Estimates for the intrinsic value are often cited between $6.33 and a higher analyst fair value of around $8.00 - $10.00, suggesting the current stock price (around $4.70 - $5.00) offers a significant discount.
  • Valuation Rationale: The stock is trading cheaply on a Price-to-Sales (P/S) basis (around 1.0x), which suggests low expectations for future revenue growth. The potential for a recovery in the labor market is not fully factored into its current price.

Analyst Estimates and Ratings 📊

• Consensus Rating: The consensus rating from analysts is generally "Hold" or "Neutral," primarily due to the ongoing uncertainty in the labor market that directly affects revenue.
• Price Target: The average 12-month price target is typically around $4.75 to $6.00, though some analysts maintain higher targets reflecting the potential for a rebound.
• Recent Analyst Activity: Within the last 30-90 days, the consensus has remained cautious ("Hold" or "Neutral"), with price targets reflecting the current slow-growth environment.

What to Watch in the Near Term: 📈

• Q3 2025 Earnings (Nov 5): The market will be focused on the company’s forward guidance and management commentary on the timing of a labor market rebound.
• Paid Employer Metric: Look for continued sequential growth in the number of paid employers, as this is the best leading indicator of a sustained recovery.

Investor-Focused Takeaway: Is ZIP Right for Your Portfolio?

ZipRecruiter (ZIP) is a high-leverage play on the recovery of the U.S. labor market. While the stock has faced significant pressure due to the "Great Freeze" in hiring, its strong gross margins, demonstrated Adjusted EBITDA profitability, and active share repurchase program make it an attractive consideration for investors with a medium-to-long-term outlook who believe a labor market "thaw" is imminent.

💼 Final Take: Two Hiring Stocks Poised for Q4 Rebound

As corporate budgets tighten and automation reshapes how companies hire, Upwork (UPWK) and ZipRecruiter (ZIP) are redefining the future of work from two distinct angles—one through AI-driven flexibility, the other through cyclical recovery potential once the “Great Freeze” ends.

💻 Upwork (UPWK) – The AI + Freelance Powerhouse
✔ Profitable with expanding margins and disciplined cost control
✔ AI and “Lifted” enterprise offerings fueling long-term growth
✔ Analysts see 20%+ upside from current levels
➤ Best for: Investors seeking exposure to structural, AI-powered growth in the flexible talent and gig economy space.

🧊 ZipRecruiter (ZIP) – The Cyclical Hiring Rebound Play
✔ Strong gross margins and positive Adjusted EBITDA despite macro headwinds
✔ $100M share repurchase program shows management confidence
✔ Positioned to benefit as hiring normalizes post-rate cuts
➤ Best for: Contrarian investors betting on a labor market recovery and operating leverage when the “Great Thaw” begins.

Investor Insight:

📈 Want AI-fueled growth and profitability in a flexible work marketplace? → UPWK
​ 📊 Looking for a cyclical rebound opportunity with strong margins and buyback support? → ZIP

Whether you prefer structural growth or a recovery catalyst, both companies are trading well below fair value—setting the stage for a potential Q4 breakout in the evolving world of work.

We’ll be back with our next report soon, bringing you fresh insights on the market and new opportunities to watch. In the meantime, we’d love to hear from you—let us know how you found this report, what niche sectors you’d like us to cover next, and don’t forget to share your top stock holdings with us. Your feedback helps us deliver reports that matter most to your investing journey.

​
Happy Trading
​— Team Premium Stock Alerts