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 a regulated 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
Record FY 16 Financial Performance: Freelancer Ltd (ASX: FLN) had reported a record result in financial year of 2016 with fastest revenue growth since IPO (USD c/c). Freelancer delivered a strong operating cash flow with the first listed full year positive operating EBITDA & NPAT. The group has reported a 190% growth in the Gross Payment Volume (GPV) to $666 million in FY 16 as compared to prior corresponding period (pcp). FLN also generated a 37% growth in the net revenue and positive operating NPAT of $0.1 million. The company has also posted a strong gross profit margin which was more than 86% while delivered a 207% growth in the operating cash flow to $4.5 million. The group delivered a solid top line performance driven by the ongoing marketplace efficiency and conversion rate improvements, better user, project & contest acquisition through a range of channels and the increased take up of value-added services. Additionally, Escrow.com has also made a positive contribution for FY16. FLN net revenue excluding Escrow.com was $45.2 million, while Escrow’s revenue for full year FY16 was $7.6 million. Escrow contributed for two months only in FY15. In addition, both the group and Freelancer core have outperformed FY15 in terms of USD revenue growth. USD is the main operating currency of the group which comprised 75% of revenue in FY16. The FLN marketplace had 71% of revenue denominated in USD in FY16 and Escrow had 97% of revenue denominated in USD in FY16. 

FY 16 Financial Performance (Source: Company Reports)
 
Strong Growth in the Gross Payment Volume: Gross Payment Volume (GPV) grew strongly in FY 16 wherein $160.3 million was contributed from core Freelancer marketplace while $505.9 million was derived from Escrow.com. The key factors leading to the growth in the GPV is User, project & contest acquisition conversion rate improvements coupled with the Escrow.com transactions. Moreover, there was an entire Escrow.com contribution for FY16. This section contributed only two months in FY15. Marketplace take rate remains at 13% due to the commissions (3% for employers and 10% for freelancers) that have remained unchanged and the pro-forma full year group monetization rate of 7.9% (Net revenue / GPV) up from 6.3% pro-forma in FY15.
 

Gross Payment Volume growth over the years (Source: Company Reports)
 
Ongoing penetration in the Market: The group’s revenue is primarily generated from new and existing users posting and fulfilling projects and contests in the Freelancer marketplace. In FY16, the jobs posted (filtered) grew at the fastest rate since 2010, rising at 53% year on year. FLN’s registered user base (including both employers and freelancers) grew exceptionally well, increasing by 4.6 million new users in FY16, which is a growth of 31% from FY15 (excluding Escrow.com). The users are acquired from a variety of sources including search engine optimization (SEO), search engine marketing (SEM), media and public relations work, events, user referrals, competitions, traditional advertising, email marketing and business combinations. Moreover, FLN’s main user acquisition focus is on attracting new employers, being those users who post projects and contests, and, therefore create demand in the online marketplace. However, the company also seeks to ensure that there is a sufficient supply of freelancers across regional, language and skill specific segments of the marketplace in order to maximize marketplace liquidity and network effects. In FY16, the growth was complemented by some small acquisitions during the year, including the Nubelo and Prolancer businesses in Latin America. Additionally, the employers accomplished work by posting projects or contests into the Freelancer marketplace, or hiring directly through the company’s freelancer directory. The total number of projects and contests posted on Freelancer.com increased by 2.6 million in FY16. The group posted a 53% rise in new jobs in FY16 against the prior corresponding period. Overall, posted jobs enhanced 33% to 10.6 million during the period. New users rose 31% to 4.6 million in FY16 while overall registered users rose 26% year on year (yoy) to 23.3 million during the period. The average completed project size slightly rose to USD 167 during the year from USD 166 in the prior corresponding period.
 
Revamping signs of Escrow.com business: In its Escrow.com business, FLN has generated a user growth of 8.6% in 2016, with an increase in users initiating transactions of 6%. However, the transactions paid decreased by 5% which had a negative impact on revenue. Most of this fall is attributed to the high value Chinese domain name market retracting at the start of 2016, which has led to malaise in the general domain name market in the year. Moreover, the Escrow team’s core focus for the year was to overhaul the processes and systems to prepare the business for scalable growth. Additionally, Escrow.com has also introduced a concierge service to help buyers and sellers of domain names transfer their assets more easily. The fee for providing this service is double the regular escrow fee. In 2016, 5% of domain transactions now use the concierge service.
 
Delivered a better than expected Fourth Quarter Performance: FLN at the end of the fourth quarter of 2016 had reported for 35% growth in the cash receipts for full financial year. This result was achieved due to the significant volatility in the Australian Dollar which ranged between 0.68 and 0.78 AUD/USD through 2016. FLN was profitable at an unaudited operating EBITDA line for every month of Q4 2016. Moreover, FLN has been able to accelerate growth alongside a significant reduction in marketing costs as a percentage of cash receipts. In the fourth quarter 2016, the marketing costs as a percentage of cash receipts reduced to 16%, from 20-22% in prior quarters during 2016, and will continue from this lower base through 2017 due to efficiency improvements. Additionally, FLN has expanded its leadership in the Latin American, Spanish and Portuguese markets by acquiring the Nubelo and Prolancer freelancing marketplaces in Q4. With these acquisitions, the group became the dominant leader in the Latin American, Spanish and Portuguese markets, by adding 750,000 registered users and 122,000 posted projects to the 1.8 million users and 502,000 projects in these markets already on FLN. 

Acquisitions contributing to the rapid growth (Source: Company Reports)
 
Stock Performance: FLN stock crashed over 42.47% in the last six months (as of February 27, 2017) as the group had delivered a weaker than forecasted third quarter of 2016 performance. The group also noted that their Escrow.com platform growth was slower than expected. On the other hand, the group’s performance improved with a decent fourth quarter of 2016 result. In fact, their Escrow.com business delivered a user growth of 8.6% in 2016, wherein the users initiating transactions rose 6%. Moreover, Escrow.com also launched concierge service enabling buyers and sellers of domain names transfer their assets more easily. This service fee is double as compared to the regular escrow fee. In 2016, 5% of domain transactions used the concierge service. Escrow.com even enhanced payment processing times to the fastest ever in their history during 2016. As a result, post the fourth quarter and full year of 2016 results, the stock recovered over 6.2% in the last five days and we believe this momentum in the stock would continue in the coming months. Investors can leverage the subdued levels of the stock while we give a “Buy” recommendation at the current price of – $ 0.84

 
FLN Daily Chart (Source: Thomson Reuters)

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