When EPWK Holdings Inc. first filed for a New York IPO in February last year, it was part of a flurry of smaller Chinese companies making such applications after China's securities regulator clarified they could proceed. The crowdsourcing specialist's plan was modest, seeking to raise up to $12 million by selling 1.5 million shares at between $7 and $8 each.

Fast forward a year and a half, when the company has upped the ante by nearly doubling its shares on offer to 2.75 million, according to its updated prospectus filed last week. But it will sell those shares at a lower price range of $4 to $6. That means it could raise up to $16.5 million, up by about a third from its original goal, in a relatively unusual move in a market where downsizings have been more the norm over the last year or two.

A pricing at the middle of its range would value the company at about $110 million.

The upsized plan could reflect changing times over the last month and a half, as U.S.-listed China stocks have rallied on growing signs that Beijing will take more decisive action to jumpstart the nation's slowing economy. EPWK appears to believe it can crowdsource more investor dollars on Wall Street in the current climate, the same way it helps its small and medium-sized enterprise (SME) clients crowdsource freelancers for gig jobs in China.

The company pitches itself as a one-stop service for enterprises, with 300 tasks in seven industry categories, from logo and website design to software development and business services. It has four revenue streams: premium business solutions, which accounted for 69% of revenue in its latest fiscal year through June; online promotions, mainly for freelancers, generating 18% of revenue in that period; value-added services, at 7% of revenue; and shared office rental and management, at 6%.

It facilitated $349 million in gross merchandise value (GMV) spread across 986,000 projects in the 2023 calendar year and continued at a similar pace in the first half of this year with $166 million of GMV across 479,600 projects. Its revenue was also relatively steady over that time, growing by 2.1% from $19.8 million in its fiscal year through June 2023 to $20.2 million in its latest fiscal year through this June. Its net loss widened from $1.08 million to $1.2 million over that period.

Its relatively stable performance contrasts with falling revenue at many Chinese companies these days as China's economy slows, reflecting a steady preference for gig workers that are cheaper for companies than traditional full-time employees.

Founder and Chairman Huang Guohua started his company after using a crowdsourcing platform to request a logo design for one of his previous startups and deciding he could do better. He has taken the company through three venture investment rounds, raising a total of 170 million yuan ($23.8 million).

Based in the city of Xiamen in South China's Fujian province, EPWK has been a significant brand in China's sharing economy since 2011. According to the prospectus, it facilitated transactions worth $1.67 billion in GMV across 4.6 million projects between 2019 and June 30, 2024, with a cumulative 8.74 million buyers of its services and 16.92 million gig workers, or sellers.

Gig Economy Proxy

On the positive side, EPWK is a proxy for China's gig economy, which is on a growth trajectory. While the size of China's crowdsourcing platform market dropped from $222 million in revenue in 2019 to $165 million in 2020 as a result of the pandemic, it rebounded to $242 million in 2021, and may grow to $656 million by 2025, according to independent research in the prospectus.  

EPWK could benefit as the second largest company in its industry, especially as companies look to save money and the number of young job seekers grows with a rising youth unemployment. In September, the National Bureau of Statistics reported a jobless rate of 18.8% for 16- to 24-year-olds, excluding students, the highest rate since it began reporting youth employment data after revising its methodology the previous December.

Many young people also increasingly prefer the type of flexibility that gig work offers. Some 19.1% of college graduates this year were choosing to be "slowly employed," while 13.7% want flexible employment, according to recruitment agency Zhaopin.

That should translate to more freelancer workers for EPWK and comparable peers like Zhubajie and Jiefanghao, with EPWK seeking to become the first of those to go public. According to the prospectus, those three companies control a combined 27.8% share of China's market for crowdsourced jobs.

Zhubaijie is the sector leader, generating $560 million in GMV in 2023 for 14.8% of the market. EPWK was second with $350 million in GMV for 9.3% of the market, followed by Jiefanghao's 3.7% on $140 million in GMV. EPWK, which would be the first of the three to make an IPO, has a niche in creative design and software development, a market whose GMV could reach $24.3 billion in 2028 according to research in the prospectus.

EPWK said it plans to use 30% of its IPO proceeds for business development and marketing, to "explore new service categories in addition to software development and design, to establish (a) flagship brand store system of high-quality service providers and increase users and the market share through brand-marketing and flow-growth."

EPWK could get a relatively high valuation as the first mover among its Chinese peers into public markets. San Francisco-based peer Upwork Inc. ( UPWK ) has a market cap of $1.8 billion and a price-to-earnings (P/E) ratio of 23. Its stock has been rocketing lately after it reported preliminary third-quarter sales that beat its earlier guidance. Upwork ( UPWK ) trades at a price-to-sales (P/S) ratio of 2.55, while EPWK would trade at about double that figure, at 5.5, based on its latest annual sales and an IPO pricing in the middle of its range.

But the news isn't all good for EPWK. The company had negative cash flow from its operating activities in each of its last two fiscal years, its gross profit margin was dropping, and it was funding operations with bank loans. China's weak economy has also shifted business away from high-margin segments like online promotions and value-added services, and amped up demand for its lower-margin premium business solutions, basically writing code for websites.

As a result of that shift, the company's gross margin sank from 25.53% in its fiscal year through June 2023 to 18.69% in the latest fiscal year through June 2024. The company said it expects the gross profit margin to generally range between 20% and 30% going forward.