Key Takeaways:

• EPWK, which helps small and medium-sized companies find gig workers, has raised its IPO fundraising target by about a third from its original plan in February 2023
• While demand for crowdsourcing platform services has recovered from a pandemic downturn, China’s slowing economy has eroded the company’s margins

By Edith Terry

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.

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.”

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.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.