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Upwork Inc. (NASDAQ:UPWK) shares soared 10% on Friday after activist investor Engine Capital disclosed it had a 3.5% stake and is urging the company to make board and other operating changes.
Engine Capital said in a letter to Upwork’s board on Friday that Upwork (UPWK) has underperformed its closest peer Fiverr (FVRR) and should work to simplify its platform, reduce costs and grow its enterprise business. Engine also argued that the company needs to repurchase more of its shares.
“Overall, it’s hard to argue that UPWK couldn’t benefit from enhancing site functionality, streamlining managerial layers, optimizing expenses, buying back shares, destaggering the Board and adding executives with staffing experience,” BTIG analyst Marvin Fong wrote in a note on Friday. “Several of these points strike us as low-hanging fruit with the Board items likely being the most contentious.”
In response to letter, Upwork (UPWK) said in a statement and that it maintains an open dialogue and values input from investors and has met with Engine Capital on multiple occasions. Upwork (UPWK) reiterated in its statement that it’s actively evaluating and planning further reductions to our expenses, specifically R&D, as part of ongoing cost management.
Before Friday, Upwork (UPWK) shares had plunged 37% this year through Thursday, while Fiverr (FVRR) fell 9.6%.
“The greater value here is the light being shone on UPWK’s inexpensive valuation and opportunities for value creation,” BTIG’s Fong, who has a buy rating and $14 price target on UPWK added. “What’s also positive about this situation is that UPWK is the industry leader with substantial cash flow and a healthy balance sheet. It’s a lot easier to improve a generally healthy business than to resuscitate a broken one, in our view.”
Upwork’s (UPWK) short interest is 9.9%.
“Upwork is now at a crossroads,” Engine Capital Managing Member Arnaud Ajdler wrote in the letter. “The Board needs to rapidly make important changes to give Upwork a chance at succeeding – or the platform risks becoming increasingly irrelevant.”
