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Research: TMT
Freelancer’s Q324 business update confirmed an increase in gross marketplace volume (GMV) of 26% y-o-y, boosted by a US$50m Escrow.com transaction during the quarter. Operating cash inflow more than doubled over the year, resulting in a small sequential increase in cash to A$21.7m. The company noted that it generated a profit after tax for the quarter. While the Freelancer division saw a decline in GMV and cash receipts in Q3, the company has started to see encouraging signs that its efforts in both customer retention and customer acquisition are paying off.
Freelancer |
Escrow drives strong volume growth in Q324 |
Q324 update |
Software and comp services |
28 October 2024 |
Share price performance
Business description
Next events
Analyst
Freelancer is a research client of Edison Investment Research Limited |
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Freelancer’s Q324 business update confirmed an increase in gross marketplace volume (GMV) of 26% y-o-y, boosted by a US$50m Escrow.com transaction during the quarter. Operating cash inflow more than doubled over the year, resulting in a small sequential increase in cash to A$21.7m. The company noted that it generated a profit after tax for the quarter. While the Freelancer division saw a decline in GMV and cash receipts in Q3, the company has started to see encouraging signs that its efforts in both customer retention and customer acquisition are paying off.
Year end |
Revenue (A$m) |
Operating EBITDA* |
PBT** |
EPS** |
EV/EBITDA |
P/E |
12/22 |
55.7 |
(6.6) |
(6.9) |
(1.52) |
N/A |
N/A |
12/23 |
53.3 |
0.6 |
0.3 |
0.06 |
101.5 |
290.1 |
12/24e |
51.5 |
0.4 |
0.2 |
0.02 |
150.6 |
747.9 |
12/25e |
53.5 |
0.9 |
0.7 |
0.11 |
70.4 |
170.2 |
Note: *Includes depreciation and interest charges associated with capitalised leases. **Excludes amortisation of acquired intangibles, exceptional items and share-based payments.
GMV +26% y-o-y in Q324, -6% in 9M24
The company reported GMV growth of 26% y-o-y in Q324 (Freelancer -4%, Escrow +31%) and a decline of 6% for 9M24 (Freelancer -3%, Escrow -9%). Cash receipts of A$14.2m in Q324 were 4% higher y-o-y and in 9M24 were 5% lower, with cash at the end of Q324 up 2.4% q-o-q to A$21.7m. The benefit of the large Escrow transaction underpins our forecasts which we maintain for FY24 and FY25.
Potential drivers of GMV growth
During Q324 and since the quarter end, the company has seen encouraging signs that its efforts to improve customer retention and drive customer acquisition in the core Freelancer marketplace are paying off, with GMV, revenue and deposits all up y-o-y on a rolling monthly basis. Retention rates for new customers are increasing, as are the size of deposits placed by new customers. In the Escrow business, the company is close to rolling out its integration with a large shopping cart platform, with other similar platforms lined up for integration once this is live. In the Enterprise business, there is scope to grow the generative AI training business, which has already contributed GMV of A$0.5m.
Valuation: Volume growth turnaround
On an EV/sales basis across FY1e and FY2e, Freelancer trades at an average discount of c 43% to its closest peers (Upwork and Fiverr). Reversal of the GMV and revenue declines will be key to reducing this gap. Catalysts could include enterprise contract wins, customers in new verticals for Escrow.com, growing Loadshift GMV and a higher take rate for Escrow.com.
Review of Q324 results
Exhibit 1 summarises the group’s performance in Q324. GMV increased 25.9% y-o-y, helped by the record US$50m transaction in Escrow during the quarter. For the nine months to 30 September (9M24), GMV declined 6.3%. Freelancer GMV was down 3.8% for Q324 and 2.8% for 9M24. Escrow GMV was up 31.2% in Q324 and down 6.8% for 9M24. Cash receipts, which are a proxy for revenue, increased 3.9% y-o-y in Q324 and declined 5.1% for 9M24. Operating cash flow more than doubled y-o-y in Q324 and was 88% higher for 9M24. Cash at the end of Q324 stood at A$21.7m, down 7.7% y-o-y but up 2.4% q-o-q. The company noted that it generated positive net profit after tax (NPAT) in Q324.
Exhibit 1: Q324 and 9M24 GMV and cash receipts
A$m |
Q324 |
Q323 |
y-o-y |
9M24 |
9M23 |
y-o-y |
GMV |
||||||
Freelancer |
32.8 |
34.1 |
-3.8% |
97.5 |
99.3 |
-2.8% |
Escrow |
247.0 |
188.2 |
31.2% |
632.1 |
672.8 |
-6.8% |
Total |
279.8 |
222.3 |
25.9% |
729.6 |
772.2 |
-6.3% |
Cash receipts from customers |
||||||
Freelancer |
10.9 |
11.4 |
-4.3% |
31.9 |
35.0 |
-8.9% |
Escrow |
3.3 |
2.3 |
44.9% |
8.1 |
7.1 |
13.8% |
Total |
14.2 |
13.7 |
3.9% |
40.0 |
42.1 |
-5.1% |
Group cash flow |
||||||
Operating cash flow |
2.3 |
1.0 |
138.8% |
4.4 |
2.3 |
88.2% |
Cash and cash equivalents |
21.7 |
23.5 |
-7.7% |
21.7 |
23.5 |
-7.7% |
Source: Freelancer
Freelancer core marketplace
The marketplace added 1.96 million new users in the quarter, up 22% y-o-y and 13% q-o-q. New projects were broadly flat, at 204,000. Market liquidity has improved, with average bids per project up to 47 from 45 in Q224 and 43 in Q323. The average project size of US$258 was down by 5.5% y-o-y as small-value projects from the Global Fleet outweighed the larger values of Loadshift loads.
The company has been focused on the following areas to drive GMV:
■
Customer retention: this includes improving product quality and introducing new products such as the recently released Workrooms and Project Updates.
■
New customer acquisition: search engine marketing and search engine optimisation are driving volume growth on flat costs – 19% and 60% respectively on a rolling monthly basis. Direct traffic is up 21% y-o-y on a rolling monthly basis. A brand marketing lead has been hired to modernise the brand identity and develop upper funnel initiatives.
The company has developed a Services marketplace which is due to be launched imminently – this offers standardised services, similar to the Fiverr business model.
While not yet evident in reported GMV for the Freelancer division, the company has seen encouraging signs of improvement. These include an uplift of 5% in client retention after the first week (on a rolling weekly basis) and a 9% y-o-y increase in new client deposits in US$ (in the first 30 days after sign-up), indicating higher-value customers. This has increased to 25% post quarter-end.
The company sees AI as benefiting the business in several ways: providing tools to help Freelancer run its business more efficiently, providing tools to upskill its freelancer base and driving a new category of work – GMV from AI-related work nearly doubled y-o-y in Q324.
Freelancer enterprise
The Global Fleet programme for AI, discussed in our previous note, qualified more than 100,000 freelancers and has led to six AI training projects. So far, this has generated GMV of more than $0.5m. The company is developing a direct integration to the customer to support scaling of this business.
In October, the company announced an agreement with the Bahrain Labour Fund (Tamkeen) to support training and development of freelancers.
Loadshift
Job postings declined 13.4% y-o-y to 11,618 loads, partly reflecting the company’s efforts to weed out participants who were posting jobs but then going off-platform to award them. Platform engagement improved, with quotes per job increasing 47% y-o-y to 8.1. Awarded loads were stable at 3,155, equating to a rate of 27.2% compared to 15.3% in Q323. Delivered loads increased by 4.6% y-o-y to 2,722. The company launched a new Load Tracking feature, which enables carriers to provide real-time updates.
Escrow
Escrow benefited from an IPv4 transaction worth US$50m in Q324, the highest ever transacted on the platform, with a leading global technology and cloud provider. Based on cash receipts during the quarter (a proxy for revenue), we estimate that the take rate was nearly 1.3%, similar to Q224.
Domain name sales facilitated by the platform totalled US$99m, up 8.6% q-o-q, with a notable increase in the volume of high-value domain names.
The business continues to work on the integration of its e-commerce checkout with one of the world’s largest shopping cart platforms, which processes transactions worth more than US$75bn per year, and expects to trial the service in Q424. Other major shopping carts are lined up to integrate with Escrow.com.
Exhibit 2: Financial summary
A$'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 |
51,549 |
53,518 |
Cost of Sales |
(7,651) |
(9,455) |
(9,786) |
(9,689) |
(8,740) |
(9,093) |
(9,794) |
(9,633) |
||
Gross Profit |
44,024 |
48,456 |
48,985 |
47,730 |
46,920 |
44,241 |
41,755 |
43,885 |
||
EBITDA |
|
|
(672) |
2,044 |
5,793 |
3,972 |
(746) |
6,784 |
6,017 |
6,218 |
Operating EBITDA |
|
|
(705) |
(1,084) |
(447) |
(2,690) |
(6,579) |
608 |
410 |
877 |
Normalised operating profit |
|
|
(1,202) |
(1,170) |
1,081 |
(922) |
(5,216) |
2,051 |
1,308 |
1,584 |
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 |
1,193 |
1,469 |
||
Net Interest |
(33) |
(219) |
(1,751) |
(2,035) |
(1,655) |
(1,717) |
(1,148) |
(882) |
||
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 |
160 |
702 |
Profit Before Tax (reported) |
|
|
(1,793) |
(1,718) |
(862) |
(3,113) |
(7,030) |
219 |
45 |
587 |
Reported tax |
309 |
127 |
216 |
856 |
1,617 |
(30) |
(13) |
(176) |
||
Profit After Tax (norm) |
(1,235) |
(1,389) |
(670) |
(2,957) |
(6,871) |
288 |
112 |
491 |
||
Profit After Tax (reported) |
(1,484) |
(1,591) |
(646) |
(2,257) |
(5,413) |
189 |
31 |
411 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
(1,235) |
(1,389) |
(670) |
(2,957) |
(6,871) |
288 |
112 |
491 |
||
Net income (reported) |
(1,484) |
(1,591) |
(646) |
(2,257) |
(5,413) |
189 |
31 |
411 |
||
Basic average number of shares outstanding (m) |
449 |
450 |
450 |
450 |
451 |
451 |
451 |
451 |
||
EPS - basic normalised (c) |
|
|
(0.27) |
(0.31) |
(0.15) |
(0.66) |
(1.52) |
0.06 |
0.02 |
0.11 |
EPS - diluted normalised (c) |
|
|
(0.27) |
(0.31) |
(0.15) |
(0.66) |
(1.52) |
0.06 |
0.02 |
0.11 |
EPS - basic reported (c) |
|
|
(0.33) |
(0.35) |
(0.14) |
(0.50) |
(1.20) |
0.04 |
0.01 |
0.09 |
Dividend (c) |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Revenue growth (%) |
0.0 |
12.1 |
1.5 |
(2.3) |
(3.1) |
(4.2) |
(3.3) |
3.8 |
||
Gross Margin (%) |
85.2 |
83.7 |
83.3 |
83.1 |
84.3 |
83.0 |
81.0 |
82.0 |
||
EBITDA Margin (%) |
-1.3 |
3.5 |
9.9 |
6.9 |
-1.3 |
12.7 |
11.7 |
11.6 |
||
Normalised Operating Margin |
(2.3) |
(2.0) |
1.8 |
(1.6) |
(9.4) |
3.8 |
2.5 |
3.0 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
33,459 |
60,699 |
61,727 |
66,372 |
66,248 |
60,502 |
56,913 |
53,399 |
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 |
10,162 |
6,648 |
||
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 |
30,113 |
32,078 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
3,474 |
4,003 |
5,593 |
6,448 |
4,825 |
3,927 |
4,469 |
4,639 |
||
Cash & cash equivalents |
33,211 |
32,014 |
34,341 |
30,316 |
23,358 |
21,153 |
22,542 |
24,337 |
||
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 |
46,405 |
47,532 |
Creditors |
35,898 |
36,607 |
39,166 |
41,259 |
39,647 |
36,529 |
38,046 |
39,173 |
||
Tax and social security |
71 |
57 |
87 |
43 |
18 |
4 |
4 |
4 |
||
Short term borrowings |
121 |
121 |
286 |
121 |
121 |
121 |
0 |
0 |
||
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 |
13,649 |
10,448 |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Lease liabilities |
0 |
23,134 |
19,094 |
16,082 |
15,519 |
12,187 |
8,986 |
5,785 |
||
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 |
26,971 |
27,497 |
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 |
23,297 |
23,823 |
CASH FLOW |
||||||||||
Op Cash Flow before WC and tax |
(717) |
1,623 |
4,066 |
2,637 |
(943) |
4,922 |
4,740 |
5,045 |
||
Working capital |
(660) |
300 |
5,094 |
(1,463) |
(3,930) |
(3,505) |
976 |
956 |
||
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 |
5,831 |
6,116 |
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 |
(121) |
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) |
1,389 |
1,795 |
||
Opening net debt/(cash) |
|
|
(31,908) |
(33,090) |
(31,893) |
(34,055) |
(30,195) |
(23,237) |
(21,032) |
(22,542) |
FX |
2,130 |
(275) |
(2,792) |
915 |
1,215 |
178 |
0 |
0 |
||
Other non-cash movements |
(121) |
0 |
(165) |
165 |
0 |
0 |
121 |
0 |
||
Closing net debt/(cash) |
|
|
(33,090) |
(31,893) |
(34,055) |
(30,195) |
(23,237) |
(21,032) |
(22,542) |
(24,337) |
Source: Freelancer accounts, Edison Investment Research
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Research: Consumer
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