Company Overview - Freelancer Limited is an Australia-based company engaged in the provision of an online outsourcing marketplace. The Company is involved in operating an online marketplace for services and providing escrow payment services. The Company operates through two segments: online marketplace and online payment services. The Company's online payment services, which includes the business of Escrow.com, is aregulated entity that holds funds on behalf of its users in trust bank accounts. Escrow.com is a provider of secure online payments and online transaction management for customers and businesses on the Internet. Escrow.com acts as a third party that collects, holds and disburses funds according to buyer and seller instructions. The Company offers Freelancer Local Jobs, and Freelancer Showcase, a cross-platform design gallery of millions of portfolio items, allowing freelancers to show off their work to employers. The Company serves small businesses, startups and entrepreneurs.


FLN Details

Acquisition of assets of Escrow Angel: Freelancer Ltd (ASX: FLN) has acquired Australian online escrow service, Escrow Angel and its automotive brand Protecti, which has licensed its platform to South Africa’s biggest non-bank card issuer Paycorp in 2014. The group intends to leverage Escrow Angel’s and Protecti’s strong reputation for escrow services in Australia, as they have plans to offer Australian users a wider suite of escrow services under their subsidiary Escrow.com, going forward. Escrow.com is the leading provider of secure online payments and online transaction management with more than US$3.0 billion escrow transactions and offers secure online payments for consumers and businesses on the internet. Offering escrow services in Australia in the future in terms of Australian Dollars is subject to licensing and regulatory approval for which the group’s efforts are currently underway.
 
Strong Financial Performance in 1H 2016:FLN has reported a strong exceptional growth in the first half of 2016, and posted a 56% growth in the net revenue to $26.2 million. The group delivered an outstanding 453% growth in the gross volumes, registered users and posted projects in 1H16. The gross payment volume grew on the back of the user, project and the contest acquisition, addition of partner volume in Escrow.com, and addition of languages and currencies. The revenue has $21.8 million contribution from core FLN which is up 30% on 1H 2015. The contribution from Escrow.com is A$4.3m which is up 18% as compared to the first half of 2015 in constant USD. Meanwhile, the revenue grew on the back of better project & contest acquisition, enhanced marketplace efficiency and conversion rate. Moreover, the group’s efforts of optimization across all platforms, ongoing product developments coupled with rising value added services, growing annual memberships and the full half year contribution of Escrow.com also contributed to the top line. The compounded growth rate of revenue from the five years is 13% and the five-year compounded growth rate of the gross payment volume is 18%. FLN has a higher gross margin of 87% in the first half of 2016. In addition, FLN core marketplace segment grew 26% against the prior corresponding period given the contribution of $80.9 million. The Escrow.com payments segment contribution is of $274 million. Moreover, the operating cash flow grew 409%, while maintaining the exposure to a deflationary environment. There is reduction in tax benefit due to Escrow.com being domiciled and profitable on a segment basis in the United States, and is paying taxes even when group is at an NPAT loss position.
 

1H 2016 Financial Performance (Source: Company Reports)
 
Growth of Users, Jobs Posted and the Projects:FLN has added 2.1 million of the total registered users in the first half of 2016 bringing to the total of over 20 million of the total registered users as on 30^th June, 2016. Moreover, FLN has added 1.4 million of the overall jobs posted in the first half of 2016, which is a growth of 40% as compared to the corresponding period of 2015, leading to over 9 million of the total jobs posted (filtered) as on 30^th June, 2016. FLN has crossed US$3.0 billion in terms of all time projects and contest value in the core business while delivered US$2.975 billion in terms of all time transaction value in Escrow.com. Additionally, FLN is strengthening the marketplace dynamics through the widest range at the lowest cost and is getting the marketplace benefits due to the reduced minimum project size. The average project size has been of US$164 in first half of 2016 which is down 4.1% as compared to the first half of 2015, which would boost the project volumes. Meanwhile, FLN’s strategic focus is on increasing revenue growth via conversion optimization and marketplace efficiency.
 

FLN’s Growth in terms of Users and Jobs Posted (Source: Company Reports)
 
Payments Growth: FLN has added 40,679 of the total number of users in the first half of 2016 which is a growth of 18.7% as compared to the corresponding period of 2015 bringing the total number of users to be 1 million as on 30^th June 2016. The total number of transactions grew 20%, which is addition of 30,372 in first half of 2016 bringing the total transactions of 761,000 as at 30^th June 2016. Moreover, more than 70% of projects get a bid within 60 seconds. For payments in the first half of 2016, there has been addition of Chinese Yuan, and addition of key new gateways including AliPay and UnionPay (China), iDEAL (Netherlands), SOFORT Banking (Germany, Austria, Belgium), Giropay (Germany), Interac (Canada), Bancontact / Mister Cash (Belgium), and Dotpay (Poland). FLN has also introduced daily express withdrawals for outbound payments. In addition, 82% of projects are now touching mobile, while the memberships are fully deployed into both Android and iOS, and credit card support has been added to Mobile Web. The instant chat is released within contest entries, and the user interface is overhauled in terms of rating entries and giving feedback. The memberships are also completely overhauled and re-deployed, together with other refinements including the launch of professional and premier memberships. Additionally, the local jobs currently see 65% of projects with bids in less than one hour and average of 9 bids per project in which the competitors advertise over 3 bids per project, and now has a 24/7 customer support team. As per the international markets, there are now 34 languages on 52 international sites with addition of 14 in 1H16, which is a significant increase as well as enhancing focus on non-English community content. The messaging has seen a 48% year-on-year increase in active threads, and has launched audio and video calls.
 

Payments Growth (Source: Company Reports)
 
FLN Revenue Model: FLN is designing its revenue model to grow strategically. The employers are free to post a project, free to review bids, free to talk and review samples. The 3% project commissions are paid by employers when a project is awarded and accepted. Moreover, the freelancers are free to view the projects which are posted, and are free to bid on these projects, as well as talk to employers and provide samples of work. The 10% project commissions are paid by freelancers when a project is awarded and accepted. Additionally, there are other value added services like project upgrades, crowdsourcing contests and upgrades, bid upgrades, transaction fees, certification fees and advertising. On the other side, FLN’s business is said to be acyclical. The global financial crisis has led to the original emergence of the online crowd sourcing and freelancing industries. The employers looked online to hire freelancers rather than fulltime staff while the workers also looked on to the internet to find new sources of employment. Additionally, the on-demand and crowdsourced economy of Australia, coupled with the rapidly increasing internet penetration of freelancers from emerging market would boost the group’s business. The group is targeting the massive market of up to $5 trillion TAM (5 billion people live on $10/day or less) as well as leverage Fintech and transition of global commerce to online (through Escrow.com).
 
Stock Performance: The shares of FLN stock started recovering since the last six months and rose over 11.1% in the last six months (as of September 09, 2016). FLN continues to get exceptional growth in users and total jobs posted as well as making solid efforts to expand their reach via acquisitions and increasing currencies. We believe the stock would continue to rise in the coming months and maintain our bullish stance on FLN. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $1.445
 

FLN Daily Chart (Source: Thomson Reuters)

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