Compnay Overview - Freelancer Limited is an Australia-based company, which is principally engaged in the provision of an online outsourcing marketplace and 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. Escrow.com offers a platform, which allows users to upload document and have their identity verified. Through its marketplace, employers can hire freelancers to do work in areas, such as software development, writing, data entry and design right through to engineering, the sciences, sales and marketing, accounting and legal services.

FLN Details
Robust ongoing performance in the first quarter 2017:Freelancer Ltd (ASX: FLN) has reported 20% growth in the cash receipts of $12.5 million to A$51.6 million in the first quarter of 2017, on a rolling 12-month basis compared to the prior period. The group reported a strong positive operating cash flow of $2.1 million during the quarter. This is due to the fact that there was a strong growth in key metrics in the core marketplace segment. On the other hand, there was continued weakness in the Escrow.com payments segment while the core infrastructure, systems and processes are overhauled. But, there was strong growth in accepted projects during the first quarter 2017. The first quarter experienced the strong bounce in this metric, improving from the weakness experienced in 2H16, which had resulted from issues in the core desktop project funnel that were corrected in mid-January 2017. The projects posted on mobile had experienced exceptional growth of 79% in the quarter year on year. The contests posted grew 23% in the first quarter. The deposits (unaudited), grew over 6% in the quarter (USD, unaudited) on the back of fixes and improvements to the core desktop project funnel. Overall the company had cash and equivalents of A$34.7 million in the first quarter of FY 17. Additionally, in 2017, the milestones to be achieved include the full automation of the payments backend, release of the new API, completion of the rollout of revamped AML/KYC (Anti-money Laundering / Know Your Customer) programs and completing the regulatory licensing programs in key jurisdictions. The company has made significant progress with respect to the first three items and the same are expected to be finished within the next two quarters. The US licensing program is progressing very well with approvals for a number of US States having been achieved in the first quarter, and it is expected that the full program would be accomplished by the end of the financial year. 

Growth in Projected Fees (Source: Company Reports)
 
Achieved fastest revenue growth in FY 16 since IPO:FLN in the FY 16 for the period ended December 31, 2016 had reported a record result with fastest revenue growth since IPO, having a strong positive group operating cash flow and the first listed full year positive operating EBITDA & NPAT. The group has reported 190% growth in the Gross Payment Volume (GPV) to $666 million during the period against the prior corresponding period (pcp), and achieved a 37% growth in the net revenue. Accordingly, they delivered a positive Operating NPAT of $0.1m. The company has posted the gross profit margin of more than 86% and reported a 207% growth in the Operating Cashflow to $4.5m. Meanwhile, the group achieved this strong result driven by their ongoing marketplace efficiency and conversion rate improvements, increased user, project and contest acquisition through a range of channels and the increased take up of value-added services. Additionally, Escrow.com has contributed for all of FY16 as the net Revenue excluding Escrow was $45.2m, while Escrow’s revenue for full year FY16 was $7.6m and Escrow contributed for two months only in FY15. In addition, both the group and Freelancer core has 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 contributed from Escrow.com. The key factors leading to the growth in the GPV is due to the User, project & contest acquisition, conversion rate improvements and the Escrow.com transactions. Marketplace take rate remains at 13% due to the commissions (3% for employers and 10% for freelancers) and have remained unchanged while the pro-forma full year group monetization rate was 7.9% (Net revenue / GPV) which was up from 6.3% pro-forma in FY15.
 

Gross Payment Volume growth in last six years (Source: Company Reports)
 
Fastest Marketplace Growth: 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, 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. The growth was complemented by some small acquisitions during the year, including the Nubelo and Prolancer businesses in Latin America. Additionally, the employers accomplish work by posting projects or contests into the Freelancer marketplace, or hiring directly through the company’s freelancer directory.
 
Payment Growth:In its Escrow.com business, FLN has generated user growth of 8.6% in 2016, with an increase in users initiating transactions of 6%. However, the transactions paid decreased 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. Hence, the Escrow team’s core focus for the year was to overhaul the processes and systems to prepare the business for scalable growth under Key Product & Operational performance. 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.
 

Stock Performance:FLN stock fell 23.1% in the last three months (as of May 01, 2017) as concerns over rising competition erupted while revenue growth was also impacted by job posting testing. On the other hand, the group reported that they are ensuring of the sufficient supply of freelancers across regional, language and skill specific segments of the marketplace in order to maximize marketplace liquidity and network effects. Accordingly, they are making acquisitions or expanding their presence. The group has built a positive track record from the last six years, delivering the averaged compound annual revenue growth rate of 50%. The total number of projects and contests posted on Freelancer.com has increased tremendously (2.6 million in FY16, which is a growth of 53% from FY15, and similar trend followed in Q1 FY17). This indicates significant growth in the critical element of capturing the intent to have work completed, while growing at the fastest rate since 2010. The group also expects track record of performance through calendar year 2017. Then game changing products such as collaboration platform are expected to boost growth. We believe investors need to leverage the subdued level of the stock as an entry opportunity. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 0.78

 
FLN Daily Chart (Source: Thomson Reuters)

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