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
Ongoing performance for third quarter of 2016, but lower than estimated: Freelancer Ltd (ASX: FLN) posted growth of 31% in the cash receipts to $12.7 million on a year over year basis for the third quarter ending 30^th September 2016. On the other hand, the stock has been under pressure post their quarter update, as investors were expecting even better performance. The group’s cash receipts have grown 47% to $38.8 million as compared to the prior corresponding period. Moreover, there was a significant appreciation in the Australian Dollar from approximately 0.69 to above 0.78 AUD/USD in this period, which also contributed to the solid performance. Moreover, for the first nine months of FY16, the operating cash flow was positive $4.2 million, which is as per FLN’s strategy to make the cash flow positive on an operating basis and to de-risk future growth. At the end of the third quarter 2016, FLN held cash and equivalents of A$34.3 million. Escrow.com also is held over A$25 million in cash, in trust, off balance sheet. However, while the revenue in the core FLN business is growing strongly in recent periods, the revenue from Escrow.com was weaker, which was mostly due to a bubble in the Chinese domain name market. On 13^th January 2016, Escrow.com had experienced exponential growth in transactions from Chinese buyers of premium domain names (e.g. 2-4 letter) in 2015. This volume was transient and unsustainable and like many asset bubbles in China in 2016. Escrow.com China volume has now reverted and is on track with its long-term trend line.
 
Strong Growth in the Job Volume in the 3Q 2016: FLN in the third quarter of 2016 posted a 47.9% growth in the job volume, which is the best quarter on record. This is due to the growth in the liquidity of 73.8% of projects being bid on within 60 seconds as compared to the growth of 70%.As per the local jobs performance, FLN generated strong growth in the local jobs as the local Jobs have now been posted in over 1,000 cities in over 100 countries. This is due to the fact that the local jobs can be posted by users anywhere, no matter where they are in the world, and from launch, the liquidity continues to grow strongly. Globally, the average number of bids per project is seven, and 65% of projects got a bid within the first hour. Therefore on average, the first bid arrives within 15 minutes.

Job Volume (Source: Company Reports)
 
Launch of Version 3 of the iOS App on the mobile: FLN has launched Version 3 of the iOS App on the mobile, which is the company’s biggest ever release. The group’s focus on mobile paid off as they reached more than 1.2 million active app users globally. FLN has experienced the Android app hit a milestone of 1 million downloads in a week, while from the iOS app the company had over 425,000 downloads. In addition, 82% of projects are through the touch mobile, wherein the memberships are fully deployed into both Android and iOS. Even credit card support has been added to Mobile Web. The instant chats are 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.

Total number of unique users that have installed the Freelancer Android App (Source: Company Reports)
 
 
Escrow.com headquarters shifted to San Francisco: FLN has announced that the new escrow payments team was hired in San Francisco along with the backend support in Sydney, so that the payments will be processed faster. As a result, payments are currently being processed 30% faster. The office in Rancho Santa Margarita, where it was previously located has been closed, and Escrow.com’s headquarters is now shifted to downtown San Francisco. The new office is supported by engineering, support and other functional groups based in Sydney, Vancouver and Manila.
 
Very strong growth in the gross volumes even during the first half: FLN has reported an exceptional growth in the first half of 2016, with 56% growth in the net revenue to $26.2 million. The group generated a 453% growth in the gross volumes, registered users and posted projects during the period. 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% on 1H15 in constant USD and 5-year CAGR of 13%. The revenue grew on the back of rising project & contest acquisition, while freelancer enhanced marketplace efficiency and conversion rate, and optimization across all platforms. Moreover, the product developments & increased take up of value added services, coupled with better take-up and optimization of memberships, in particular annual memberships also drove the performance. Escrow.com also contributed to the growth during the first half of 2016. In addition, FLN core marketplace segment grew 26% on pcp through the contribution of $80.9 million. The Escrow.com payments segment contribution is of $274 million. The gross payment volume grew on the back of user, project and the contest acquisition, conversion rate optimization, addition of partner volume in Escrow.com, as well as languages and currencies. The group delivered a compounded growth rate of revenue from five years of 13% and the five-year compounded growth rate of the gross payment volume of 18%. FLN has high gross margin of 87% in 1H 2016. Additionally, 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. Moreover, FLN is focusing on an increased investment in talent and on repositioning the newly acquired Escrow.com business for growth.
 

1H 16 Financial Performance (Source: Company Reports)
 
Freelancer Revenue Model highlights: Employers can post free projects on the site and even are free to review bids, free to talk and review samples. Employers pay only 3% project commissions when a project is awarded and accepted. Similarly, even freelancers can view the projects posted freely, and can bid for the projects’ costs. Freelancer can even talk to employers and offer samples of work. But once the project is awarded and accepted, freelancers need to pay 10% project commissions. As per the Membership plans, the group offers a price range from US$0.99 to US$59.95 a month, and offer several features and benefits including increased bid limits, eligibility for preferred freelancer and high value project bidding.
 
Stock Performance: The shares of FLN lost over 32.8% in the last three months (as of November 25, 2016) due to their lower than estimated quarter results. The company recently announced for cancellation of 1,686,809 fully paid ordinary shares owing to its buy-back plan and in accordance with employee share plan. On the other hand, FLN has considered fiscal year of 2016 to be an exceptional year for the company as there is first full year contribution from Escrow.com. FLN has an attractive outlook, but faces competition from the likes of U.S. giant Upwork. Despite this competition, FLN has delivered a strong growth in the cash receipts, positive operating cash flow and an all-time record for number of jobs posted. Moreover, FLN is being considered one among the fastest-growing tech companies. We give a “Buy” recommendation on the stock at the current price of – $ 1.02

 
FLN Daily Chart (Source: Thomson Reuters)

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