Freelancer Ltd Releases FY 2015 Results

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Australia-based global online work intermediation platform Freelancer Ltd (ASX:FLN) reported its FY 2015 results Tuesday. The company is one of only two work platform businesses that is publicly traded. Freelancer was featured as our WIP of the Week last Friday for our PRO subscribers. As noted there, Freelancer is a work intermediation platform with a unique strategy that has included a series of 10 acquisitions since inception in 2009. (The most recent acquisition, effective start of November 2015, was payment processor Though the company’s online freelancer marketplace is about one-fifth the size of Upwork in terms of spend or gross payment volume, the company reports that it is the largest in terms of numbers of users.

Results Overview

Freelancer’s year-over-year growth in gross payment volume or GPV (effectively, spend) was reported at 120%. As noted above, the company’s growth has been both organic and by acquisition. FY 2015 GPV consisted of 91.1 A$m from (for the last two months of 2015) and 138.2 A$m from the rest of the business (the online marketplace platform). On an annualized basis, the combined GPV would exceed 700 A$m.

Note: Graphics from “Freelancer Limited Financial Report and Directors Report for the Year Ended 31 December 2015.”

Accordingly, year-over-year growth in the online marketplace platform business was a nonetheless impressive 33% (all organic growth). The company’s online marketplace platform “take rate” (corresponding net revenue as a percent of GPV) rose from 25.1% to 26.6% year-over-year. As shown by the red trend line below, the “take rate” has been increasing steadily since 2010.

Freelancer’s net revenue (excluding grew to 38.6 A$m in FY 2015, a year-over-year increase of 48% (entirely organic growth). Steady growth since 2010 has been a mix of acquisitions and organic. Gross margin (reline below) has been steady since 2011 at over 85%.

Note: Graphics from “Freelancer Limited Financial Report and Directors Report for the Year Ended 31 December 2015.”

After running at essentially break even, net profit/loss went from (1.8 A$m) in 2014 to (2.8 A$m) in 2015, as forecasted, management.

However, the company reports raising “capital in two transactions during 2015 — principally to fund the purchase of, and also to accelerate its investment in product, staffing and infrastructure globally. As a result of the continued focus on reinvesting for top line growth, the Company delivered an operating EBITDA of (2.0) A$m, up from (2.1) A$m in FY14, and despite the increase in expenditure on talent, generated positive operating cash flow of $1.46 million in FY15, up from (0.1) A$m in FY14."

In the press release, Freelancer’s Deputy CFO Christopher Koch noted the company’s “very strong balance sheet with $32 million in cash at 31 December 2015.”

Spend Matters Perspective

Many observers of the emergence of work intermediation platforms have been of the opinion that such new business models may not be viable for host of reasons. Freelancer Ltd has now become a test case, as a publicly-traded company offering significant visibility to industry observers.

Freelancer raised 20 A$m through public issue over FY 2015, about half of which appears to have gone to the acquisition of, a mature “secure online payment” processor (ostensibly complementary to the Freelancer Ltd online marketplace product lines). As we noted in our research brief last week, Freelancer is pursuing a strategy of acquisition (of ostensibly complementary assets) and product/service diversification.

No one can deny that Freelancer has successfully executed this strategy to date and now, with access to capital, has the ability to raise cash and invest in growth. This is a new stage for Freelancer, and its future success will depend on its growth investments and its effectiveness in achieving synergies among — and more importantly, bringing efficiencies to — its growing portfolio of assets. While on a promising path, Freelancer has much to prove moving forward. However, investor confidence is high, with the share price over the past 12 months increasing by about 90%.

At this point, Freelancer, unlike private-equity backed Upwork, does not exhibit any kind of strategy to approach serving large enterprises. Consequently, for contingent workforce and services procurement managers, Freelancer may not seem relevant. However, it is — as an illustration of how work intermediation platform business is growing and developing. How Freelancer fares through this next stage of its development in the next few years remains to be seen. And in this new world of online work platforms and ecosystems, we will need to see how it may develop further and/or what larger ecosystem it might fit into.

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