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Freelancer’s Q124 results were mixed. Operationally, the company is seeing rising demand for AI specialists as customers seek affordable ways to develop proprietary AI. Notably, in Enterprise, the company delivered a large-scale AI pilot for a tech giant, sourcing 20,000 freelancers in 24 hours across 52 languages. This impressive achievement could lead to a substantial multi-year contract. Major initiatives across Loadshift and Escrow with leading organisations are set to be deployed over the coming months, potentially catalysing performance and diversifying revenue streams. We revise our forecasts to account for a weaker Q1 than anticipated, though positive lead indicators, especially relating to AI, underscore long-term optimism.
Written by
Freelancer |
AI to drive return to growth |
Q124 results |
Software and comp services |
25 April 2024 |
Share price performance
Business description
Next events
Analysts
Freelancer is a research client of Edison Investment Research Limited |
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Freelancer’s Q124 results were mixed. Operationally, the company is seeing rising demand for AI specialists as customers seek affordable ways to develop proprietary AI. Notably, in Enterprise, the company delivered a large-scale AI pilot for a tech giant, sourcing 20,000 freelancers in 24 hours across 52 languages. This impressive achievement could lead to a substantial multi-year contract. Major initiatives across Loadshift and Escrow with leading organisations are set to be deployed over the coming months, potentially catalysing performance and diversifying revenue streams. We revise our forecasts to account for a weaker Q1 than anticipated, though positive lead indicators, especially relating to AI, underscore long-term optimism.
Year end |
Revenue (A$m) |
Operating EBITDA* |
PBT** |
EPS** |
EV/EBITDA |
P/E |
12/22 |
55.7 |
(6.6) |
(6.9) |
(1.5) |
N/A |
N/A |
12/23 |
53.3 |
0.6 |
0.3 |
0.1 |
117.7 |
396.3 |
12/24e |
56.6 |
2.1 |
1.8 |
0.3 |
34.0 |
72.7 |
12/25e |
61.0 |
3.3 |
3.0 |
0.5 |
22.0 |
44.7 |
Note: *Includes depreciation and interest charges associated with capitalised leases. **Excl. amortisation of acquired intangibles, exceptional items and share-based payments.
A mixed Q1 reflected in revised estimates
Q124 gross marketplace volume (GMV) was down 23.8% y-o-y to A$227.1m, driven by a 26.5% y-o-y decline in Escrow GMV to A$195.7m after a particularly strong Q123, with Freelancer GMV down 2.2% to A$31.5m. The impact on cash receipts was substantially smaller, down 3.6% y-o-y to A$13.2m across the group given Escrow’s substantially lower take rate versus Freelancer. Management expects to integrate Escrow with two world-leading e-commerce platforms in Q2, supporting revenue diversification. Cost reductions in FY23 supported a year-on-year swing to positive operating cash flow of A$1.0m in Q124 (Q123: -A$0.1m).
Upcoming initiatives to support long-term success
AI has been pivotal in the group’s latest initiatives. AI is being used to optimise job postings, automate outreach and reduce malicious activity, while also expanding job types, potentially driving operationally geared growth. In Q1, the Enterprise business rapidly deployed an AI pilot for a tech giant, showcasing scalable AI services that could lead to a major long-term contract in FY24. Loadshift, which is continuing to transition to the Freelancer marketplace model, reported 70.9% y-o-y GMV growth as more freight was monetised, remaining a primary performance driver. Despite operational progress, we revise down our revenue forecasts slightly while maintaining similar margin expectations as we anticipate a more material benefit from current initiatives in the medium term.
Valuation: Several potential levers for value creation
On EV/sales, Freelancer trades at a 1.2x average across FY24e and FY25e versus peers on an average of 2.0x. Demonstrating the group’s ability to scale profitably, leveraging any of its businesses to support growth, could close this discount.
Q124 results show several positive lead indicators
Freelancer’s Q124 GMV of A$227.1m (-23.8% y-o-y) was primarily affected by Escrow, which saw GMV fall 26.5% y-o-y to A$195.7m after an exceptionally strong performance from domain names in Q123. Freelancer, which includes the retail marketplace, Enterprise, and Loadshift, reported a smaller year-on-year decline of 2.2% to A$31.5m. We note that there were fewer business days in Q124 compared to Q123 due to the timing of Easter. We believe smaller project size across its retail marketplace was the primary driver of the decline in the Freelancer business, given volumes were up and the other two divisions reported positive progress. The group is continuing to see growing interest for AI specialists, which has the potential to catalyse both volumes and project size. We believe this will be supported by investments in the user interface and collaborative features, which are designed to optimise user engagements, retention and expand the potential scope of certain projects.
The decline in cash receipts from customers, a proxy for revenue, was less pronounced at 3.6% yo-y for the group to A$13.2m. This reflects the smaller take rate (the share of revenue generated from GMV) of Escrow at c 1% versus Freelancer at c 13%.
Exhibit 1: Q124 results overview
(A$m) |
Q124 |
Q123 |
y-o-y |
GMV |
|||
Freelancer |
31.5 |
32.2 |
-2.2% |
Escrow |
195.7 |
266.1 |
-26.5% |
Total |
227.1 |
298.3 |
-23.8% |
Cash receipts from customers |
|||
Freelancer |
10.8 |
11.0 |
-2.0% |
Escrow |
2.3 |
2.6 |
-10.2% |
Total |
13.2 |
13.7 |
-3.6% |
Group cash flow |
|||
Operating cash flow |
1.0 |
(0.1) |
N/A |
Cash and cash equivalents |
21.7 |
22.7 |
-4.2% |
Source: Freelancer
Freelancer stated that it made a small operating loss in the period but generated operating cash flow of A$1.0m. We believe this swing to positive operating cash flow year-on-year partially reflects cost reductions made in FY23, discussed in our last note.
Operational highlights to drive value across Freelancer
Below we highlight several operational updates that we believe could drive long-term value across the group:
■
Freelancer retail marketplace
•
Launching a new feature for newly registered freelancers to reach out and engage with clients they have previously worked for outside of the platform. This could become a significant new channel for client acquisition given the substantial number of freelancers joining the platform daily.
•
AI tools including guides, assistants and more to help scope out and expand a project.
■
Enterprise
•
Delivered a large-scale pilot for a tech giant, crowdsourcing generative AI tasks to train its foundational model. The pilot sourced and qualified over 20,000 freelancers across 52 languages within 24 hours, showcasing Freelancer’s ability to rapidly mobilise a global workforce for AI projects.
•
Further proposals with three companies to white label Freelancer’s marketplace.
•
A 235% y-o-y increase in repair volume in Q124 in global field services.
•
Launched a competition for the Australian Space Agency, in collaboration with NASA’s Artemis programme, to design Australia’s first lunar rover.
■
Escrow
•
Integrating into two of the world’s leading e-commerce platforms, which management expects to complete in Q224. One of the partners has more than 70,000 active stores and processes over US$1bn in monthly transaction volume, although we maintain the view it will take time for users to become aware of and comfortable with the service.
Changes to forecasts
We revise our revenue forecasts down marginally, reflecting the decline in Q1 GMV and cash receipts. However, we note this may be conservative, particularly if one of the aforementioned initiatives, particularly in Enterprise, gains traction more rapidly than expected.
Exhibit 2: Summary of forecast changes
FY24e |
FY25e |
||||||
New |
Old |
% change |
New |
Old |
% change |
||
Revenue |
56.6 |
57.3 |
-1.3% |
61.0 |
61.6 |
-1.0% |
|
Growth |
6.1% |
7.5% |
-1.4% |
7.8% |
7.5% |
0.3% |
|
Gross profit |
47.7 |
48.3 |
-1.3% |
51.4 |
52.0 |
-1.0% |
|
Gross margin |
84.3% |
84.3% |
0.0% |
84.3% |
84.3% |
0.0% |
|
Operating EBITDA |
2.1 |
2.5 |
-15.6% |
3.3 |
3.6 |
-9.2% |
|
Operating EBITDA margin |
4% |
4% |
-0.6% |
5% |
6% |
-0.5% |
|
Normalised net income |
1.3 |
1.6 |
-17.6% |
2.1 |
2.3 |
-10.0% |
|
Normalised diluted EPS (c) |
0.28 |
0.34 |
-17.6% |
0.46 |
0.51 |
-10.0% |
|
Net debt/(cash) |
(25.7) |
(26.1) |
-1.8% |
(30.1) |
(30.8) |
-2.2% |
|
Source: Edison Investment Research
We maintain our cost assumptions, with profits and margins marginally affected from our lower revenue expectation. Our forecast net cash still shows that Freelancer will maintain a robust balance sheet, supported by our net income assumption and the company’s low capital intensity.
Exhibit 3: Financial summary
A$'k |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024e |
2025e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||||
Revenue |
|
|
51,675 |
57,911 |
58,771 |
57,419 |
55,660 |
53,334 |
56,594 |
61,012 |
Cost of Sales |
(7,651) |
(9,455) |
(9,786) |
(9,689) |
(8,740) |
(9,093) |
(8,887) |
(9,580) |
||
Gross Profit |
44,024 |
48,456 |
48,985 |
47,730 |
46,920 |
44,241 |
47,707 |
51,432 |
||
EBITDA |
|
|
(672) |
2,044 |
5,793 |
3,972 |
(746) |
6,784 |
8,267 |
9,416 |
Operating EBITDA |
|
|
(705) |
(1,084) |
(447) |
(2,690) |
(6,579) |
608 |
2,105 |
3,254 |
Normalised operating profit |
|
|
(1,202) |
(1,170) |
1,081 |
(922) |
(5,216) |
2,051 |
3,530 |
4,676 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Share-based payments |
(558) |
(329) |
(192) |
(156) |
(159) |
(115) |
(115) |
(115) |
||
Reported operating profit |
(1,760) |
(1,499) |
889 |
(1,078) |
(5,375) |
1,936 |
3,415 |
4,561 |
||
Net Interest |
(33) |
(219) |
(1,751) |
(2,035) |
(1,655) |
(1,717) |
(1,703) |
(1,703) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(1,235) |
(1,389) |
(670) |
(2,957) |
(6,871) |
334 |
1,827 |
2,973 |
Profit Before Tax (reported) |
|
|
(1,793) |
(1,718) |
(862) |
(3,113) |
(7,030) |
219 |
1,712 |
2,858 |
Reported tax |
309 |
127 |
216 |
856 |
1,617 |
(30) |
(514) |
(857) |
||
Profit After Tax (norm) |
(1,235) |
(1,389) |
(670) |
(2,957) |
(6,871) |
234 |
1,279 |
2,081 |
||
Profit After Tax (reported) |
(1,484) |
(1,591) |
(646) |
(2,257) |
(5,413) |
189 |
1,199 |
2,001 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
(1,235) |
(1,389) |
(670) |
(2,957) |
(6,871) |
234 |
1,279 |
2,081 |
||
Net income (reported) |
(1,484) |
(1,591) |
(646) |
(2,257) |
(5,413) |
189 |
1,199 |
2,001 |
||
Basic average number of shares outstanding (m) |
449 |
450 |
450 |
450 |
451 |
451 |
452 |
452 |
||
EPS - basic normalised (c) |
|
|
(0.27) |
(0.31) |
(0.15) |
(0.66) |
(1.52) |
0.05 |
0.28 |
0.46 |
EPS - diluted normalised (c) |
|
|
(0.27) |
(0.31) |
(0.15) |
(0.66) |
(1.52) |
0.05 |
0.28 |
0.46 |
EPS - basic reported (c) |
|
|
(0.33) |
(0.35) |
(0.14) |
(0.50) |
(1.20) |
0.04 |
0.26 |
0.44 |
Dividend (c) |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Revenue growth (%) |
0.0 |
12.1 |
1.5 |
(2.3) |
(3.1) |
(4.2) |
6.1 |
7.8 |
||
Gross Margin (%) |
85.2 |
83.7 |
83.3 |
83.1 |
84.3 |
83.0 |
84.3 |
84.3 |
||
EBITDA Margin (%) |
-1.3 |
3.5 |
9.9 |
6.9 |
-1.3 |
12.7 |
14.6 |
15.4 |
||
Normalised Operating Margin |
(2.3) |
(2.0) |
1.8 |
(1.6) |
(9.4) |
3.8 |
6.2 |
7.7 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
33,459 |
60,699 |
61,727 |
66,372 |
66,248 |
60,502 |
60,086 |
59,667 |
Intangible Assets |
26,429 |
26,429 |
26,457 |
34,119 |
34,120 |
34,120 |
34,120 |
34,120 |
||
Tangible Assets |
557 |
27,446 |
22,785 |
19,392 |
18,323 |
13,751 |
13,335 |
12,916 |
||
Deferred tax & other |
6,473 |
6,824 |
12,485 |
12,861 |
13,805 |
12,631 |
12,631 |
12,631 |
||
Current Assets |
|
|
37,657 |
37,326 |
41,964 |
38,955 |
30,797 |
28,182 |
33,789 |
38,638 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
3,474 |
4,003 |
5,593 |
6,448 |
4,825 |
3,927 |
4,906 |
5,289 |
||
Cash & cash equivalents |
33,211 |
32,014 |
34,341 |
30,316 |
23,358 |
21,153 |
25,782 |
30,247 |
||
Other |
972 |
1,309 |
2,030 |
2,191 |
2,614 |
3,102 |
3,102 |
3,102 |
||
Current Liabilities |
|
|
38,628 |
42,984 |
48,170 |
50,849 |
48,831 |
45,009 |
48,887 |
51,201 |
Creditors |
35,898 |
36,607 |
39,166 |
41,259 |
39,647 |
36,529 |
40,407 |
42,721 |
||
Tax and social security |
71 |
57 |
87 |
43 |
18 |
4 |
4 |
4 |
||
Short term borrowings |
121 |
121 |
286 |
121 |
121 |
121 |
121 |
121 |
||
Lease liabilities |
0 |
3,248 |
5,628 |
5,709 |
5,562 |
4,842 |
4,842 |
4,842 |
||
Other |
2,538 |
2,951 |
3,003 |
3,717 |
3,483 |
3,513 |
3,513 |
3,513 |
||
Long Term Liabilities |
|
|
1,413 |
25,102 |
26,356 |
23,148 |
21,749 |
16,850 |
16,850 |
16,850 |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Lease liabilities |
0 |
23,134 |
19,094 |
16,082 |
15,519 |
12,187 |
12,187 |
12,187 |
||
Other long term liabilities |
1,413 |
1,968 |
7,262 |
7,066 |
6,230 |
4,663 |
4,663 |
4,663 |
||
Net Assets |
|
|
31,075 |
29,939 |
29,165 |
31,330 |
26,465 |
26,825 |
28,139 |
30,254 |
Minority interests |
(20) |
(20) |
(20) |
(3,674) |
(3,674) |
(3,674) |
(3,674) |
(3,674) |
||
Shareholders' equity |
|
|
31,055 |
29,919 |
29,145 |
27,656 |
22,791 |
23,151 |
24,465 |
26,580 |
CASH FLOW |
||||||||||
Op Cash Flow before WC and tax |
(717) |
1,623 |
4,066 |
2,637 |
(943) |
4,922 |
5,935 |
6,741 |
||
Working capital |
(660) |
300 |
5,094 |
(1,463) |
(3,930) |
(3,505) |
2,899 |
1,931 |
||
Exceptional & other |
(160) |
(196) |
(1,439) |
1,313 |
535 |
339 |
0 |
0 |
||
Share-based payments |
558 |
329 |
192 |
156 |
159 |
115 |
115 |
115 |
||
Net operating cash flow |
|
|
(979) |
2,056 |
7,913 |
2,643 |
(4,179) |
1,871 |
8,950 |
8,787 |
Capex |
(135) |
(227) |
(221) |
(429) |
(149) |
(53) |
(120) |
(120) |
||
Acquisitions/disposals |
23 |
0 |
(28) |
(7,662) |
0 |
0 |
0 |
0 |
||
Borrowings |
121 |
0 |
176 |
0 |
0 |
0 |
0 |
0 |
||
Equity financing |
57 |
340 |
0 |
3,987 |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
86 |
(3,091) |
(2,721) |
(3,479) |
(3,845) |
(4,201) |
(4,201) |
(4,201) |
||
Net Cash Flow |
(827) |
(922) |
5,119 |
(4,940) |
(8,173) |
(2,383) |
4,629 |
4,466 |
||
Opening net debt/(cash) |
|
|
(31,908) |
(33,090) |
(31,893) |
(34,055) |
(30,195) |
(23,237) |
(21,032) |
(25,661) |
FX |
2,130 |
(275) |
(2,792) |
915 |
1,215 |
178 |
0 |
0 |
||
Other non-cash movements |
(121) |
0 |
(165) |
165 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(33,090) |
(31,893) |
(34,055) |
(30,195) |
(23,237) |
(21,032) |
(25,661) |
(30,126) |
Source: Edison Investment Research, company accounts
|
|
Research: Industrials
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