Online freelance platform Upwork (UPWK) will IPO today. At a price of $15 per share, the company plans to raise up to $90 million with an expected market cap of ~$1.3 billion. At the midpoint of the IPO price range, UPWK currently earns our Unattractive rating.

UPWK is unprofitable (like a record 83% of IPOs so far this year), but there’s more reason to be optimistic about this IPO than many others we’ve looked at in the past. The company’s accelerating revenue growth and improving capital efficiency provide some reason to believe it could potentially justify its valuation (or at least prove appealing to a potential acquirer).

This report aims to help investors sort through Upwork’s financial filings to understand the fundamentals and valuation of this IPO.

Upwork is the eBay for Freelancers

UPWK was formed through the merger of competing companies Elance and oDesk. It earns revenues by charging service fees to freelancers that find work on its platform. These fees are based on a percentage of a freelancer’s billings with each client. The company has 375 thousand freelancers on its platform performing work for 475 thousand clients. The company earned $122 million in revenue from these users through the first six months of 2018, up 14% year over year.

While none of UPWK’s competitors – such as Fiverr or Freelancer.com – are public, the company’s role in connecting buyers and sellers of labor makes it similar to eBay (EBAY), which connects buyers and sellers of used goods. eBay, with a return on invested capital (ROIC) of 21% and over $10 billion in revenue over the trailing twelve months, represents a best-case scenario for UPWK’s future profitability.

Figure 1 compares UPWK to EBAY on the basis of average invested capital turns (revenue/average invested capital) and a number of trailing twelve months profitability metrics.^[1] It shows that UPWK already matches or surpasses EBAY on capital efficiency and fee percentage, but still lags far beyond on overall profitability.