Hayden Brown: Sure. So we feel the pricing change was definitely very successful, and the outcomes were in line with our expectations. Customers have gotten a better benefit in terms of the features and functionality that they’re receiving. The pricing is working for them, although we do see, for a period of time until we anniversary this change, some of that GSV headwind even as we’ve seen a big uptick on the revenue side that has yielded a higher marketplace, a higher overall take rate for the business. So that is kind of the overall, I think, observation of what we’ve seen with the pricing change. We do expect that the GSV headwind that we saw coming out of that change will be something that once we anniversary the change, which was late April of last year, will fade out and will be kind of in a new situation around that.
Operator: Our next question comes from the line of Logan Reich of RBC Capital Markets.
Logan Reich: Just one quick one on artificial intelligence. Obviously, ChatGPT has gotten a lot of buzz recently. On a more long-term basis, how do you view the advent of artificial intelligence as like a headwind or a tailwind for the business just given there would probably be some categories that could be fulfilled through AI and also some categories that would pop up as a result of artificial intelligence? So just want to get a sense of how you’re thinking of that on a more long-term basis.
Hayden Brown: Yes. Our view is that the opportunities here are so exciting for our customers and for Upwork, and certainly, the opportunities far outweigh the risks. I highlight a couple of things in particular that I’m excited about in terms of AI and how it’s going to impact our customers in our business. So one is we can already see, with the applications that are available today, how incredible these can be in terms of productivity tools that make our talent, all talent, but talent on Upwork that’s leveraging them better, faster and cheaper in what they do. And that is just in line with why people come to Upwork and what they’re looking for, and we’re already seeing talent leveraging these tools to get better and more effective at their work, which I think is a tremendous value.
The second one is we do see the companies that are building the AI platforms and infrastructure that are subject of so much of kind of the headline news these days. They need talented skilled workers to do the work that is related to all of the stages of developing, deploying and commercializing those models. And so we already work with notable companies in this space, serving them with the talent that they need, and we can continue to expand that as this entire market is growing. Because these models — as smart as the AI is, the models don’t all build themselves. There are people needed to actually go through and work on the workflows in a variety of ways to make this happen. The third opportunity that I am excited about is the ways that companies that are integrating new AI tools and applications into their services, whether it’s integrating them into their websites or offering for customers, again, they need talent to do this integration work and to do some of the work around customizing, tailoring and deploying these solutions as they’re being adopted at scale in the market.
And this is another place where Upwork talent already has a lot of the activity happening and can continue to serve this market going forward. I think we noted that we’ve seen searches for AI-related services on our website grow 3,900% in the last 4 months alone as well as job post growing 1,400% in the last couple of months. So this is just the beginning, I think, of many ways that this will impact our business very positively and the way that our customers can take advantage of Upwork as they’re navigating kind of this next frontier of technology.
Operator: Our next question comes from the line of Maria Ripps of Canaccord.
Maria Ripps: So I just wanted to go back to your point about sort of different phases of recovery. And so if you look at the clients that have moved into the second phase, are there any sort of common characteristics or perhaps even verticals that are represented in that group? And then I have a quick follow-up.
Hayden Brown: I wouldn’t say, Maria, there’s a specific trend in terms of clustering that activity by industry or anything like that. We do see — at Upwork, we do serve tech-enabled businesses broadly. And so we see different parts of the business be impacted through the macro. Some are in that Phase 1, as we talked about. They’re kind of navigating a more turbulent time. And others are leaning in and they’re comfortable and they’re ready to spend more. So both of those things are seen simultaneously in our customer base right now. And I wouldn’t say it’s even — as you look at things like industry, cuts of the data and things like that, it hasn’t been evident that, that is — there’s kind of clear lines of demarcation that is determining that behavior. It seems very company-specific because different companies are moving through kind of different stages of this at their own pace at the moment. So we’re not really seeing it by industry.
Maria Ripps: Got it. And then secondly, I appreciate all the color sort of on brand spend and sort of understanding that you’re targeting to reduce brand spend this year versus last year. Can you maybe just talk about how you’re thinking sort of about prioritizing brand spend relative to other investment opportunities this year?
Hayden Brown: Sure. We think about the brand spend as umbrella driver that brings the awareness of the market that then our sales team, our other market channels, whether it’s performance marketing, digital marketing, other kinds, et cetera, can pick up and take advantage of because we’ve created more of that headroom and awareness space for ourselves in the market. So for that reason, it is right now something we’re deploying as a kind of underpinning strategy that’s meant to lift all those other activity in the business. I think if we have to make trade-offs later in the year around profitability for some reason or something else due to unexpected or unforeseen things, clearly, the brand area and others will be up for evaluation.
I mean I think we’ll just look at where are we getting the best return and is it from brand or is it something else. And that will be a conversation we would have then. But I think right now, we have prioritized the brand spend because of the results that we shared and because of the belief that this is a moment when companies absolutely resonate with our value proposition and yet the vast majority of them aren’t aware of Upwork and aren’t aware of what we offer. So we have to connect those dots for them and then all of the rest of our sales and marketing and product work will work harder in that environment when we have more of that awareness.
Operator: Our next question comes from the line of Marvin Fong of BTIG.
Marvin Fong: A couple of questions. Just first on the 13% revenue guidance for 2023. Just wondering if you could maybe look at it through the lens of enterprise versus SMB. Do you expect both of them to be kind of similarly weak year-on-year? Obviously, enterprise is going to outgrow SMB, we would all guess. But just maybe just add some color about how you’re thinking about those 2 end markets relative to your guidance.
Hayden Brown: Sure. I’d say SMBs are the faster twitch part of our business, so they tend to slow down faster when conditions get rocky and then pick up faster once they get comfortable or once conditions change. Enterprises are the slower twitch part of the business. So they behave through a slightly different arc. But the good news is we are still seeing strong demand in that environment. A lot of the things I mentioned earlier in the call are more timing issues of us getting reps ramped and the flow-through from the improvements we made last year on operations and things like that. So I think that’s why there are some different dynamics on each side. But for both sides, we are baking in an expectation based on the numbers and the trends we’re seeing right now, that these parts of the business will both grow and they will both grow in a way that’s in line with what we’re seeing from the end of last year and heading to this year.
So we’re basically expecting some consistency there based on our execution and everything that we’ve done to date.
Marvin Fong: That’s great. And then my next question — my second question, just on the net adds, like returning to that topic. I think this is the first quarter decline sequentially since you’ve been giving us the active client metric, and I appreciate the reasons for that. I was just curious if you could just dissect for us, what can you tell us about the clients that are leaving the platform? I mean were they really just sort of experimenters who didn’t really do much business and we’re really not sorry to see them go? And then maybe as a follow-up to that, does history tell you that clients that churn out, that you’re able to recapture them in the future?
Hayden Brown: Yes, sure. I’d say the reason — I mean to try to simplify on the client net adds number, the kind of the reason that we are lower quarter-over-quarter is more to do with smaller acquisition cohorts in the recent periods rather — relative to very large acquisition cohorts that we had when you go back over the last 18 months or so that creates this very large healthy base of active customers. But more recently, our acquisition cohorts have been smaller in terms of their ability to contribute to that mix. And then we have seen — I wouldn’t say meaningful changes in churn that are concerning, it’s more — as you look at — as we look at measuring churn on our site, over different periods of time, customers do display kind of episodic behavior.
And so it’s not — it’s kind of hard to say like when have we lost the customer because you might see a customer go dormant for 3 months, 6 months, 9 months, and then they come back and they come back with multiple needs or whatever that case may be. So I think that’s where we’re doing a lot with our product solution, things like full-time hiring, things that we can put in terms of customers to get them reexcited about Upwork, things they might have forgotten or not known that we can offer them. That’s part of the strategy in terms of driving that engagement from existing users that may have lapped and then obviously continuing with our acquisition efforts this year to make sure that those customer cohorts coming in continue to be healthy.
Operator: Our final question comes from the line of Bernie McTernan of Needham & Company.
