Freelancer — Building the Amazon of Services

Freelancer is an Australian company, operating one of the world's largest online marketplaces connecting businesses with freelancers, including those from developing countries. As well as supporting entrepreneurs and SMEs, the company has blue-chip customers such as NASA and Deloitte. CEO Matt Barrie founded the company in 2009 and has used M&A for international expansion, as well as for the development of its two other businesses: Loadshift, Australia's largest marketplace for heavy freight, and Escrow.com, a large-value transactions processor. Loadshift emerged from acquisitions in 2018 and 2021, and we believe the transition of customers over to Freelancer’s marketplace technology stack offers significant monetisation potential. Escrow.com facilitates secure and swift transactions in various domains, processing over US$600m annually, serving clients like Meta and eBay. After optimising its acquired platforms and ensuring compliance among the client base, the company could be in the early stages of strong long-term growth.

Management generates revenue through commission on the value of work/payments transacted through its platforms. As well as reinvigorating volumes, expanding the take rate is key to the company’s growth strategy, which it delivers through value-added services like memberships for its marketplaces or additional security measures for Escrow.com. Volumes declined across both platforms over the last few years, primarily due to post-COVID-19 behaviour and a fall in domain name transactions, which can be lumpy. We are expecting a reversal in FY23 which we expect to be achieved through multiple avenues. For the marketplace, targeted marketing to grow its demand-side user base and investment in new features that can expand average project size could drive gross merchandise value (GMV). The Loadshift business and enterprise operations have the potential to grow rapidly, leveraging the core marketplace’s technology. In Escrow.com, in the near term we expect volumes to be driven by domain name sales, while the adoption of value-add services could expand the take rate. The recent reduction in employee numbers should help margin progression and H123 results confirmed that all business units are now profitable on an operating EBITDA pre-FX losses basis.

In our view, our reverse discounted cash flow (DCF) implies that the current share price does not reflect its long-term potential, despite our lower forecast revenue growth and margins relative to peers in the short-term. Recent changes, including Loadshift’s transition to a marketplace model and developments in its enterprise offering suggest the company is positioning itself for faster growth over the next three to ten years. Comparing multiples, Freelancer trades at an average discount of 60% to its peers using EV/sales across FY1e and FY2e. When compared to its two most comparable peers, Upwork and Fiverr, the discount is at an average of 21%. Milestones that show that revenue can accelerate in the mid-term, such as enterprise contract wins, growing Loadshift GMV or customers in new verticals for Escrow.com, could act as catalysts for the stock.

Macroeconomic changes, like those during the COVID-19 pandemic, can affect the company's marketplace due to shifts in working patterns. Technological advancements like generative AI could enable businesses to complete work internally, rather than use an external specialist. There are also execution risks as the company refines its platforms and explores growth opportunities. Additionally, the company's limited free float, with non-executives owning a significant portion of shares, may limit share liquidity. Lastly, while its Escrow licences can act as a competitive moat, failure to meet regulatory requirements could cost the company in monetary and reputational terms.

Freelancer operates one of the largest online marketplaces for freelancers, connecting businesses of all sizes to contractors based around the world. With a large proportion of contractors from developing countries, the platform provides competitive pricing for work and supports greater wealth distribution from the developed to the developing world.

The company operates and reports through two divisions. Within the Marketplace division, the company operates the Freelancer marketplace (which includes a specialist enterprise offering) and Loadshift, a marketplace for heavy haulage freight. The Escrow division operates Escrow.com, an escrow payment service that supports the secure processing of large-value transactions. The company’s customer roster includes blue-chip enterprise customers such as Deloitte, NASA and Meta. In Exhibit 1, we show the business lines within each division and the key growth drivers for each business.

Freelancer was founded in 2009 by current Chairman and CEO Matt Barrie, following the acquisition of Swedish company GetAFreelancer. The acquisition was funded by Startive Ventures, a technology-focused venture capital fund owned by Simon Clausen, a current non-executive director of Freelancer. Later that year, GetAFreelancer was rebranded to Freelancer.com. Since then:

Management has employed a buy and build strategy, which, as shown by Exhibit 2, has enabled it to accelerate international expansion and provided the foundations for its other two main business units, Escrow.com and Loadshift. Acquisitions have been cash rather than equity-settled.

We note that external investors acquired stakes in Freightlancer at the same time that the company acquired Loadshift. Freelancer now owns 53% of Freightlancer, which owns 100% of Loadshift.

Alongside its M&A programme, management has spent several years optimising the business models of the acquired companies and ensuring client bases are secure to limit potential fraud and spam. Now this process is largely complete, the company is positioned to scale securely across all three business units.

Following the company’s M&A programme, management is now focused on growing the business organically. In the long term, we believe Freelancer may use M&A again to enter new verticals, employing a similar strategy to Loadshift, where management is transitioning the business from the acquired subscription bulletin board business model to the same codebase as its Freelancer marketplace.

To grow organically, Freelancer is primarily focused on increasing the volume of work it processes through its platforms (GMV). It can generate incremental revenue by expanding its GMV take rate.

To grow GMV, management is focusing on:

To expand its take rate of the GMV across its platforms, the company offers a portfolio of value-added services, which have the potential to generate sticky, recurring revenue.

We explain the specific strategies for each business unit in more detail below.

Freelancer.com is the world’s largest marketplace for freelancers by user base, with over 67m registered members spanning 247 countries, regions and territories. The number of freelancers on the platform ensures high liquidity, with 73.5% of projects receiving their first bid within 60 seconds of posting (end Q123). Exhibit 4 demonstrates how the majority of the source of jobs is from the Americas and Europe whereas the source of freelancers is weighted towards Asia.

In H123, the company processed A$87.6m of gross payment value (GPV) through its platform (A$65.2m in GMV plus A$22.4m in revenue) and the division is now operating EBITDA positive (ex Loadshift).

Freelancer specialises in enabling the fulfilment of customisable job requirements and to a high standard at relatively low cost by leveraging its deep pool of freelancers globally. Project sizes range considerably, from a US$10 logo design to as large as a US$10m project for NASA. Freelancers can select from over 2,700 skill areas, meaning that almost any job requirement can be fulfilled on the platform. Exhibit 5 shows that over half of completed projects fall into the categories of ‘websites, IT and software’ or ‘design, media and architecture’.

Management has spent significant resource and time developing validation and rating systems to support project reliability and quality, instilling confidence in the client and supporting higher engagement. Competitions, rather than standard project tenders, enable freelancers who are new to the platform to build a reputation and high star rating. Discussed below, competitions can also be a lucrative alternative for freelancers and can allow them to collaborate on groundbreaking projects, such as the National Institute of Health’s and NASA’s US$10m award for gene editing in the central nervous system.

Investment in improving the user experience is key to driving freelancer and client growth on the platform. Management’s current focus is on design as well as personalisation and collaborative functions to improve communication, drive conversion and retention, as well as increase average project size, including:

Its enterprise package allows individual organisations to develop a custom platform, based on Freelancer’s proprietary InSource enterprise product. Management believes there is significant latent demand, particularly from multinationals, for customisable platforms that can connect either underutilised internal pools of talent or external pre-qualified freelancers to a particular project.

At the core level, management monetises the platform by taking a share of the value of projects posted: 3% commission from its demand-side clients and 10% from the freelancers. Freelancer then offers memberships and several value-added services, allowing it to expand its take rate of the GPV. Management rarely sees disputes between its clients and freelancers, but has a three-stage process to ensure optimum satisfaction among its membership base. We discuss the process and cash flows below.

For clients:

For freelancers:

In addition to the free version of the platform, the company offers membership programmes that provide freelancers with a host of benefits including increasing the number of bids they can make, exclusive access to higher value projects and daily cash withdrawals. The four programmes are Basic, Plus, Professional and Premier, and as an example, in the UK they range in price from £4.45 to £59.95 per month. Management believes that freelancers convert to being paid members as it elevates their chances of being awarded a project, particularly at the higher-value end. For the company, memberships provide stable, monthly recurring revenue and the tiers provide upsell opportunities.

In addition to memberships, management has a selective Preferred Freelancer programme (PFP), where freelancers are chosen on reputation and previous quality of work. Benefits for the freelancer include exclusive invitations to high value projects, preferential fee payment plans for Recruiter projects and premium support. To join the PFP, amongst other things freelancers need to be in the top 3% overall ranking in their chosen skill sets, be verified by Freelancer, have a professional profile and portfolio of work suitable for enterprise customers and be certified (ie rank in the Preferred Freelancer entrance exam).

In addition to its PFP scheme, Freelancer offers a higher-level verification process to KYC, including a video interview, confirming that the account is authentic – this service costs £96/$99. Once verified, the freelancer earns a blue tick by their name and has instant access to projects worth more than $2,500 and hourly projects worth more than $50.

Competitions offer an alternative way of posting a project on the Freelancer.com platform, where freelancers can compete against each other to win a monetary award from the client. Management introduced competitions to its platform in 2011, providing several benefits to its clients and freelancers. These benefits include:

For clients:

For freelancers:

For management, using competitions is key to expanding the number of high-quality freelancers globally, without having to incur the marketing costs of recruiting freelancers through traditional avenues. By expanding the ways in which they can post work, competitions are also important to growing its demand-side client base.

Since 2018, management has developed several avenues to work with enterprises of all sizes, including:

In FY22, the company reported that enterprise services (not including GMV-linked revenue) generated revenue of A$3.3m, up 21% y-o-y (contributing 7% of Freelancer divisional revenue and 6% of group revenue).

In May 2022 (H122), management deployed the MyGigs platform developed for Deloitte, a collaborative product built on Freelancer’s enterprise platform, InSource. MyGigs provides Deloitte’s staff with access to external PFP freelancers or connects to internal teams worldwide, which may have the capacity to provide additional resource. MyGigs is integrated with several of Deloitte’s internal systems, including SAP Fieldglass, creating an end-to-end product allowing internal staff to hire freelancers, manage projects and process payments at scale. At the end of H123, over 48.6k consultants had been onboarded to the platform, a 13.8k increase from the time of its AGM on 17 May 2023.

MyGigs generates SaaS recurring revenues based on the number of staff using the platform and Freelancer takes a commission on any external project work completed through its PFP freelancers. At the end of FY22, Freelancer noted that the average external project size was $1,469 and that liquidity was higher externally than for internal projects, with average bid counts of 8.3 and 3.5, respectively. Freelancer’s dedicated team of product managers and engineers also saw engagement double from October 2022 to end Q123, as it continues to see demand for further customisation and for enhanced capabilities. Management believes that by embedding itself deep within Deloitte, MyGigs has become a sticky product solution for Freelancer.

MyGigs is Freelancer’s flagship product for InSource, which was built alongside MyGigs over several years. Following completion, management believes that InSource can now be customised and integrated into an enterprise within a few months to a year.

Working with governments is a second core growth driver for Freelancer’s enterprise operations. In 2020, management jointly won the US$25m NASA Open Innovation Services (NOIS2) tender, giving the company responsibility for crowdsourcing talent to support the next era of space exploration. Since winning the tender, NASA has increased its allocation to the NOIS2 programme to US$175m. Freelancer’s NASA tender currently underpins the government source of revenue for its enterprise offering, where management penetrates other areas within the US government through NASA (which acts as the lead organisation for government crowdsourcing). Exhibit 7 provides examples of the task orders won on the Freelancer marketplace in H123, including National Institute of Health’s A$10.6m Genome Editing competition – the largest competition ever posted on the Freelancer website. In Q123, a total of A$16.9m has been awarded across 13 competitions as part of the NOIS2 tender.

For NASA and the US government, crowdsourcing expands the pool of talent they can access and can substantially lower costs by providing access to lower-cost labour markets. Given the award sizes, these contests can attract large research institutions and universities, as well as any qualified freelancer. The company monetises the work through project fees that include engineering and design as well as running the contest. The US is its primary source of revenue, but the company has generated some revenue from several countries in the Middle East and states that it has a strong pipeline including a finalised proposal with a state-wide government organisation in Asia-Pacific, announced in Q123.

The third prong of its enterprise work is field services, connecting Freelancer’s qualified field service engineers to customers in those regions for local work, such as hardware repairs. For an enterprise, using Freelancer provides a low-fixed cost and trusted way of locating specialists, replacing the work and potentially high variable costs of finding and managing local specialists or agencies. In Q123, Freelancer completed its integration with a global computer and printer company’s CRM and workflow management system, which is now fully operational across India, Malaysia, Australia, New Zealand and Indonesia (see Exhibit 8). Freelancer believes there is a near-term growth opportunity in penetrating the much larger US market and expanding into installation work for the company, which is less capital intensive than hardware repair.

Management employs the same 3% fee from its clients and 10% commission from freelancers and can provide other value-added services to expand its take rate, such as additional levels of security or reach. Expanding into new geographies and specialist project areas is also a key objective for the rest of 2023.

Separately through the platform, small and medium-sized enterprises (SMEs) can also post projects at a company level, rather than as an employee of a company, and may be able to reduce commission if volumes are high enough.

Loadshift is Australia’s largest marketplace for heavy haulage freight, in areas such as machinery, construction, industrial mining and all other types of ‘big, ugly freight’, according to management. To date, over 750m km of freight has been posted, with the platform processing a notional gross load value of c A$300m (A$4.03/km) in FY22.

Freelancer made its foray into the freight marketplace with its acquisition of Channel 40 for an undisclosed amount in 2018, which then became Freightlancer once consolidated. The company then acquired Loadshift in 2021, augmenting Freightlancer’s marketplace platform with the client base of Australia’s largest heavy haulage freight marketplace. The merged entity kept the name Loadshift, with Freightlancer decommissioned.

The focus for Loadshift in FY22 was moving it from a classified membership model to a marketplace model. While the membership model remains, management sees the transition of companies over to the marketplace model as the greatest growth opportunity, allowing it to benefit from the increase volumes of freight posted through the platform; this process started in H222.

Like the Freelancer marketplace, the company charges its clients and drivers 3% and 10% (5% for members) commission, respectively, on the cost of transporting the freight. These are largely standardised, but management may charge more for complex and large transportations, such as for construction sites that require large volumes of freight. Additionally, the marketplace provides value-added services for an additional fee, including the management of permits, road closures, import/export taxes and duties, shipping documents and more.

Loadshift solely operates in Australia given the size and the number of verticals that require the movement of heavy freight, including mining and infrastructure. In the long term there is the potential to expand the marketplace to other geographies; we believe Canada would be an obvious next choice based on its size and the number of mining operations. There is also the opportunity to replicate Loadshift in other verticals by using its enterprise stack as a platform.

Loadshift currently sits within the Freelancer division, but we expect it to be segmented after it has reached a certain size. Additionally, the high-value of the freight being moved provides an opportunity to cross-sell Escrow.com, ensuring additional security in the value chain.

Freelancer describes Escrow.com as the PayPal for large-value transactions, providing a secure and quick checkout option for items ranging from c US$1k to US$100m in areas such as real estate, domain name transactions, luxury items and M&A. Escrow.com can also digitise traditional offline methods of trading goods, such as for oil, gas and mineral rights. The platform processes over US$600m transactions annually and works through these stages:

We believe that Escrow.com provides a compelling proposition for high-value transactions, where the alternatives, as shown below, are often less secure and inefficient:

The combined security and digitisation of the transaction process can simplify long distance and cross-border transactions, elevating the liquidity of a marketplace. The importance of features like KYC verification is growing to ensure regulatory compliance in several jurisdictions.

Since Escrow.com was acquired in 2015, management has invested in bolstering the security of the platform by ensuring that both parties are KYC verified and becoming fully licensed throughout the US, Canada and Australia, with the UK near finalisation. In the company’s experience, becoming fully licensed is typically a five- to seven-year process, creating significant regulatory barriers to entry. Additionally, Escrow.com is the only online payments solutions for eBay motors and supports its Authenticity Guarantee for luxury watches, showcasing the importance of security for merchants selling high-value items.

As shown by Exhibit 12, the platform has been used for transactions involving several premium domain names, including Meta, Uber, Instagram, Twitter and Crypto.com, underpinning management’s claim that Escrow.com is ‘where the metaverse is bought and sold’. The company believes payment volumes in domain name transactions are highest when there is an emerging trend, like the crypto trend in 2021. The current interest in generative AI is driving higher venture capital investment in the sector, with Escrow.com volumes picking up again in H123 (+26% h-o-h) after a slow period in H222. In FY22, two-thirds of the Escrow.com’s GPV came from domain names at US$411.5m (FY22 total: US$668.4m).

Entering new verticals presents a growth opportunity, particularly in areas where processing large transactions can be complex, manual and involve many credit layers. The company notes it can grow utilisation in new and current verticals by penetrating the client bases of its partners, eg Acquire.com, which is a marketplace for the buying and selling of start-ups Growing its take rate from c 1% could generate additional revenue even with stable payment volumes; this would be achieved by providing add-on services, such as checking shipping documents, post inspection sale adjustments and lease swap arrangements.

After the 2008 financial crisis, companies sought a leaner and more efficient workforce. Until recently, technology lacked the capability for management teams to effectively leverage cloud-based contractors worldwide. With advancements like generative AI enabling real-time translation, accessing cost-effective specialized talent has never been easier.

From SMEs to large multinationals, utilising cloud-based freelancers offers a host of benefits, which drives the adoption of marketplaces like Freelancer.com. These include:

Marketplaces like Loadshift are benefiting from similar market dynamics. Moving heavy freight can be complex and requires significant coordination. Using a cloud-based platform can streamline the process of finding available carriers from a potentially larger and more diverse pool of specialists, resulting in cost savings and time efficiencies. Platforms can also extend reach by allowing shippers to connect with operators across different regions and countries. Marketplaces, like Loadshift, are also equipped with services that ensure regulatory compliance, reducing the risk of incurring penalties or non-delivery.

In the public market there are a limited number of companies that compete directly with Freelancer’s marketplace, including Fiverr and Upwork, which are both listed in the US.

Management believes Freelancer differentiates itself from its listed peers by providing both customised services and access to freelancers globally, including from developing nations. In place of customisation, Fiverr’s strategy focuses on efficiency optimisation and ease of use. Freelancers on its platform post the specifics of their service under a fixed pricing structure

Upwork’s platform is similar to Freelancer in that its clients can leave open jobs for freelancers to bid on or can get in touch with them directly based on the freelancer’s skillset. However, Upwork is more US-centric and has a more rigorous process for freelancers to join its platform, targeting mostly US and western contractors.

There is significantly more fragmentation on the private side; however, all business models do share similarities with the listed peers. Several companies are vertical specific, including Superside, Dribbble, Behance and Australian-based 99designs, which provide digital design services, and Clarity, which is start-up focused.

Other platforms, like Guru, PeoplePerHour and Malt, are more pricing and job agnostic. Additionally, the company competes with traditional methods of hiring a freelancer, such as job boards, referrals and networking.

In today's globalised economy, cross-border transactions are increasingly common and a growing number of verticals are looking to move to online payment methods. Distance may lead to information asymmetry between buyers and sellers, and there may be additional risks for international parties such as different legal systems, currencies and regulations. Regulators across the world are also becoming more stringent with financial institutions and customers being KYC compliant, with the US Financial Crimes Enforcement Network a key example.

In Exhibit 13, we show the size of the markets in which Escrow.com operates, management’s expected compound annual growth rate for each vertical and average industry take rates by category.

Secure escrow services offer a standardised and third-party platform, ensuring secure exchanges of assets or funds, reducing the risk of fraud, non-payment or non-delivery. Platforms can also handle the complexity of international hurdles, as well as compliance with local regulation, providing a streamlined end-to-end service. Therefore, we believe the opportunities for escrow platforms will only grow in a diverse range of verticals.

Growing use of e-commerce, technological advancements and changing consumer behaviours have expanded the payments processing landscape. Global payment networks like Mastercard and Visa still play an important role in facilitating funds transfers between banks, merchants and consumers. However, as digital and online payments grow in popularity, new technologies are integrating into these networks to make transfers more efficient and secure, as well as provide consumers with more payment channels.

For consumers, solutions like PayPal, Apple Pay and Google Pay can make purchasing easier and more efficient, while keeping transfers secure with biometric and authentication technologies. Stripe and Square are typically B2B services, offering SMEs various tools for e-commerce and in-person transactions. As shown in Exhibit 14, the market for small-value transaction payment processors is concentrated, with digital wallets only accounting for 3% of US domestic card volume by value (Freelancer). Escrow.com, which processes payments between c US$1k and US$100m, has significantly fewer competitors.

In the large transactions processing market there have been significantly fewer new entrants, where current alternatives to Escrow.com are primarily banks and law firms. However, these options can come with a significantly higher fee structure, potential conflicts of interest and limited interoperability with online platforms. There are also blockchain escrow services, where complexity may inhibit adoption, transactions are irreversible once recorded and there is limited jurisdictional control.

Freelancer has a one-tier board structure, comprising Matt Barrie, CEO and chairman, as well as two non-executive directors, Darren Williams and Simon Clausen. Collectively, the board owns 81.7% of the company’s stock, with Matt Barrie the top shareholder (43.6%).

As well as starting Freelancer in 2009, Matt founded and was CEO of Sensory Networks, a vendor of high-performance network security processors, which was sold to Intel Corporation in 2013. Matt was also an adjunct associate professor at the University of Sydney, where he taught cryptography for 15 years and, later, technology venture creation, while running Freelancer and Sensory Networks.

The company’s non-executive directors also have deep roots with the company. Darren Williams transitioned to the role in late 2015 following his time as executive director and chief technology officer at Freelancer. He co-founded Sensory Networks with Matt. Simon Clausen was a founding investor in Freelancer through his venture capital fund Startive Ventures. Simon has over 17 years’ experience in high-growth technology businesses in both Australia and the United States. He also founded and was CEO of PC Tools, a consumer-centric software company that generated over US$100m in revenue annually before it was sold to Symantec in 2008.

The board is supported by a team of eight experienced managers, including Neil Katz (chief financial officer), Laurent Goudet (chief technology officer), Adam Byrnes (VP of products and growth), Yves Sy (VP of operations), Sebastián Siseles (VP, international), Andrew Boyton (acting VP of engineering) and Bryndis Henrikson (VP, managed services).

In the table below, we summarise the fees that Freelancer earns within the Freelancer division.

As well as commission fees, the company can also earn additional fees from the marketplace (eg membership fees, upgrade fees, verification fees, PFP fees) and from the enterprise business (eg engineering services, recruiter fees, co-pilot hourly fees, per user per annum fees for InSource).

For Escrow.com, Freelancer earns a percentage of the payment value (see take rate in Exhibit 15). The rate varies depending on the type of asset bought/sold. It also earns a small amount from value-added services such as checking whether cars are stolen or subject to finance agreements or tracking the service history of medical equipment.

Exhibit 16 shows our forecasts and the company’s performance over the last three years.

The group has generated a gross margin in the range of 83–85% over the last five years and we forecast a similar rate over the next three years. Costs of sale include payment gateway and bank fees for processing transactions, as well as direct labour costs associated with managing certain enterprise engagements.

Employee costs make up the bulk of operating costs, followed by administrative costs, marketing costs and depreciation. The company currently has c 360 employees and we forecast this to rise gradually over the next three years. There are c 220 employees in Manila, Philippines, including an engineering group, customer support, quality assurance and fraud services. The remaining employees are spread across Australia (c 85; includes engineers and data scientists, finance, sales and marketing, HR, product management, Loadshift and security), Argentina (c 20; includes Escrow account managers, payment processing and recruiters), Canada (c 12), UK (c 12) and the US (c 5).

We show reported EBITDA and operating EBITDA. Operating EBITDA is the company’s chosen profitability metric and it includes depreciation and interest charges associated with capitalised leases (ie it is essentially pre-IFRS 16 EBITDA). Both EBITDA measures exclude share-based payments. We forecast a small operating EBITDA profit this year, gradually increasing in FY24/25.

Net finance costs comprise interest charges relating to leases; the company has no other material debt. The company is loss-making at a group level, but incurs tax in Canada, India and the UK where it makes a profit. This has been more than offset by the tax credit on losses in Australia. We note that Freelancer only owns 53% of Loadshift, although the contribution from the business is not yet material so there is minimal minority interest deduction. The company does not pay a dividend.

There is currently an employee share plan (ESP) in place but it is gradually being wound down – employees were invited to buy shares and the company provided a loan to allow the employee to pay for them. The shares vest over a four-year period; once vested, the employee either repays the loan or the shares are cancelled. As of 31 May 2023, 0.81m shares were remaining in the ESP scheme. In FY21, the company launched a long-term incentive plan through which employees are awarded share options; by the end of FY22, 78k share options had been awarded.

On 25 July, the company reported H123 results (see Exhibit 17). Escrow.com GPV was down y-o-y but was 26% higher h-o-h as volumes showed recovery from the lows in H222. While operating EBITDA was still negative, excluding FX losses of A$0.6m it was A$0.2m. The company noted that all businesses are operating at or above break-even (we understand this is on an operating EBITDA pre-FX losses basis). Net cash after leases increased from A$2.2m at the end of FY22 to A$3.7m at the end of H123.

Freelancer consumed A$4.2m in operating cash flow in FY22 but is targeting positive operating cash flow in FY23. The company operates a negative working capital model as it receives cash from clients prior to paying over to freelancers. Net cash outflow for leases totalled A$3.8m in FY22 and we forecast A$4.2m pa for FY23–25. Capex is minimal at less than A$0.5m pa.

Fixed assets mainly comprise goodwill and intangibles from acquisitions. The company does not amortise these intangibles but undertakes annual impairment reviews; Freelancer does not capitalise development costs. Right-of-use assets mainly comprise leases on property, with the largest lease for the company’s headquarters in Sydney and a smaller lease for staff in the Philippines. Part of the Australian premises is sublet, generating other income of A$1.8m in FY22.

Freelancer had cash of A$23.1m at the end of H123 and minimal debt. Leases totalled A$19.2m, resulting in net cash of A$3.7m at the end of H123.

As Fiverr and Upwork are the only two listed companies that compete with Freelancer, our peer table uses a range of small- and mid-cap online marketplaces, as well as some aspirational peers with an EV over A$1bn. Our forecasts indicate slower revenue growth and margin expansion for Freelancer compared to its peers, but we believe this does not reflect the long-term potential of the group. Recent changes, including Loadshift’s transition to a marketplace model and final developments to its Enterprise product, InSource, indicate that the group is positioning itself to grow more rapidly in the mid-term.

Looking at multiples, we compare Freelancer to its peers using EV/sales due to it being in the early stages of profitability. Across FY1e and FY2e, the company trades on 1.8x and 1.7x respectively at an average discount of 60.0%. When looking only at Upwork and Fiverr, the discount narrows to an average of 20.6% but widens when comparing solely with its aspirational peers at 72.7%.

Delivering material evidence of the true growth potential of its newer operations, namely Loadshift, enterprise and Escrow.com, should act as a catalyst to the stock. This could include Loadshift GMV growth as users convert to using the platform, winning more flagship clients like Deloitte or NASA, or a growing contribution to Escrow.com GMV from newer verticals such as checkouts.

Our reverse DCF suggests that the current market price only implies modest growth and margin expansion, ignoring the long-term potential of all three of Freelancer’s businesses, in our view. To get to the current share price, after our explicit forecasts to FY25 we have assumed y-o-y revenue growth of 8% from FY25 to FY32 and an EBITDA margin expansion of 3.3pp to 8.0%, as well as a 3% terminal growth rate and a 9% WACC.

As discussed previously, we believe that the group could grow more rapidly in the mid- to long term, nearing comparable rates to Fiverr and Upwork. We note that Freelancer also can leverage its Loadshift and Escrow.com business for growth, whereas Fiverr and Upwork solely rely upon their marketplaces. Operating leverage, gained through further automation of the platform, should also drive margin expansion after our near-term forecasts. Assuming y-o-y revenue growth of 10% from FY26 to FY32, and growing EBITDA margins from 4.5% in FY25 to 10.6%, would imply a share price of A$0.35, 26% upside to the current share price. We note that the forecast growth rate and EBITDA margin is still lower than the peer average as well as the average of Fiverr and Upwork.

Below we detail several sensitivities for Freelancer that investors should be aware of: