Upwork Q3 Revenue Falls 8% as AI Activity Grows

Upwork Inc. (Nasdaq: UPWK) reported lower marketplace activity and revenue for the third quarter of 2026, even as the freelance-work platform generated a 34.4% adjusted EBITDA margin and highlighted growth in its AI-related and small-business offerings.

Gross services volume, or GSV, fell 10% year over year to $914.1 million for the quarter ended September 30, while revenue declined 8% to $185.6 million. Because revenue contracted more slowly than transaction volume, Upwork’s take rate increased 46 basis points to 20.3%. GAAP gross margin was 76.1%, down 115 basis points from a year earlier.

Adjusted EBITDA totaled $63.8 million, representing 34.4% of revenue. Free cash flow was $53.9 million, equivalent to 84.4% of adjusted EBITDA. Both adjusted EBITDA and free cash flow are non-GAAP measures.

AI-related work expands

Upwork identified the combination of human expertise and artificial intelligence as one of its three main growth pillars, alongside small-business growth and enterprise expansion.

GSV generated by freelancers whose profiles list AI skills increased 55% year over year. That activity reached an annualized rate of about $450 million in the third quarter, calculated by multiplying quarterly GSV by four.

The company also reported increasing use of its Model Context Protocol server following its August launch. Weekly active users rose twentyfold, while AI agents made nearly 50 million requests. Upwork estimated that MCP server usage is generating approximately $3 million in annualized Connects revenue. Connects are virtual tokens used by talent to bid on projects and purchase advertising products on the marketplace.

Upwork said its position between clients, human experts and AI agents could support the delivery of human-supervised AI services at scale. Its longer-term strategy includes AI-enabled work products and an on-demand hiring offering called Upwork Now.

Business Plus gains small-business traction

Business Plus, Upwork’s offering for small and midsize businesses, generated approximately $72 million in GSV during the quarter and represented 8% of companywide GSV. Business Plus GSV increased 132% from the prior-year period, while active clients using the offering rose 154%.

Forty percent of active Business Plus clients recorded their first spending on Upwork through the offering, indicating that it is attracting customers new to the platform rather than serving only as an upgrade path for existing users.

The company said its small-business strategy centers on attracting and converting higher-value customers through tailored products and additional services. It also cited a focus on high-value client acquisition and expansion while acknowledging pressure in the customer-acquisition environment.

Enterprise expansion includes WorkMotion acquisition

For larger customers, Upwork is continuing to move enterprise clients to Lifted, its platform for sourcing, contracting, managing and paying contingent workers. Lifted acquired WorkMotion Software GmbH, an employer-of-record provider that enables direct employment of contingent talent in more than 30 countries.

Upwork recorded $5.7 million of transaction-related costs associated with the WorkMotion acquisition during the third quarter. Those costs, primarily for legal, accounting and other professional services, were included in general and administrative expenses.

The company also incurred $4.3 million of costs related to the restructuring announced in May 2026. Restructuring costs for the first nine months of the year totaled $18.1 million.

Upwork framed its strategy around an estimated $1.3 trillion addressable market in 2028, based on a commissioned third-party study. That estimate comprises $120 billion of contingent digital knowledge-work spending by companies with fewer than 500 employees, $530 billion from larger enterprises and $650 billion of agentic AI work aligned with or enhancing digital knowledge work.

The company cautioned that its plans remain subject to uncertainty, including competition, rapid technological and market changes, the development and adoption of AI-enabled products, execution of strategic initiatives, and the timing and impact of the WorkMotion acquisition and cost-saving measures. Upwork also noted that adjusted EBITDA excludes items including stock-based compensation, restructuring charges and material acquisition-related costs, limiting direct comparison with GAAP results.