Freelancer — Escrow drives strong volume growth in Q324

Freelancer (ASX: FLN)

Last close As at 13/11/2024

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Research: TMT

Freelancer — Escrow drives strong volume growth in Q324

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.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Freelancer

Escrow drives strong volume growth in Q324

Q324 update

Software and comp services

28 October 2024

Price

A$0.185

Market cap

A$83m

US$0.67/A$

Net cash (A$m) at end Q324
(excluding lease liabilities)

21.7

Shares in issue

450.9m

Free float

16.4%

Code

FLN

Primary exchange

ASX

Secondary exchange

OTC FLNCF

Share price performance

%

1m

3m

12m

Abs

5.6

0.0

(24.0)

Rel (local)

4.4

(4.4)

(36.8)

52-week high/low

A$0.255

A$0.160

Business description

Freelancer is an Australian company, operating one of the world’s largest online marketplaces for freelancers. Its marketplace division has two business units: 1) its core platform, which provides services targeted at small and medium-sized companies and includes an enterprise service for large multinationals; and 2) Loadshift, which is Australia’s largest marketplace for heavy haulage freight. Separately, the company owns Escrow.com, which provides secure online escrow payment services for larger value transactions.

Next events

FY24 results

February 2025

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Freelancer is a research client of Edison Investment Research Limited

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*
(A$m)

PBT**
(A$m)

EPS**
(c)

EV/EBITDA
(x)

P/E
(x)

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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New Zealand

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United Kingdom

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United States

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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