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Freelancer’s FY23 results marked a key milestone as the group moved to positive operating EBITDA. Profitability was driven by lower opex than we anticipated as gross marketplace volume (GMV) and revenue declined due to a delayed recovery in the core retail platform and Escrow. Loadshift momentum following its transition to a more value-driven marketplace model, along with Enterprise growth, softened the size of the revenue decline. While Escrow volumes and revenue were down, lead indicators remain positive, with two major e-commerce platforms expected to deploy the Escrow service in H124. Loadshift, Enterprise and the retail platform also provide diverse levers to drive a return to growth, where delivery on a lower cost base will be key to a re-rating.
Written by
Freelancer |
Primed for margin expansion |
FY23 results |
Software and comp services |
29 February 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 FY23 results marked a key milestone as the group moved to positive operating EBITDA. Profitability was driven by lower opex than we anticipated as gross marketplace volume (GMV) and revenue declined due to a delayed recovery in the core retail platform and Escrow. Loadshift momentum following its transition to a more value-driven marketplace model, along with Enterprise growth, softened the size of the revenue decline. While Escrow volumes and revenue were down, lead indicators remain positive, with two major e-commerce platforms expected to deploy the Escrow service in H124. Loadshift, Enterprise and the retail platform also provide diverse levers to drive a return to growth, where delivery on a lower cost base will be key to a re-rating.
Year end |
Revenue (A$m) |
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 |
99.1 |
348.0 |
12/24e |
57.3 |
2.5 |
2.2 |
0.3 |
24.2 |
52.6 |
12/25e |
61.6 |
3.6 |
3.3 |
0.5 |
16.8 |
35.3 |
Note: *Operating EBITDA includes depreciation and interest charges associated with capitalised leases. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Several lead indicators point to FY24 momentum
FY23 GMV fell 6% y-o-y to A$1,021m and revenue declined 4.2% to A$53.3m. The retail marketplace has seen a prolonged recovery after pandemic highs, partially offset by strong performance elsewhere. Enterprise momentum accelerated in Q4 with 55% y-o-y revenue growth (12% for FY23), with several new contracts expected to contribute in H124. Loadshift saw a 238% increase in GMV, validating the marketplace model strategy. While subdued domain name transaction volumes affected Escrow in FY23, Q4 volumes rebounded. The division recently signed two new e-commerce partners that could help diversify risk from domain names, the largest contributor to revenue.
FY23 profit target achieved
Despite 2.6% lower FY23 revenue than our A$54.8m forecast, operating EBITDA and net income exceeded expectations at A$0.6m (forecast A$0.3m) and A$0.2m (forecast A$0.0m). Lower opex, primarily staff costs, drove profitability, while a A$3.5m working capital outflow led to lower net cash than forecast of A$21m. Our updated forecasts are aligned to FY23 performance, indicating slower top-line growth at c 7% across FY24 and FY25 but greater margin expansion than previously expected underpinned by greater visibility of the cost base. Management’s investments in AI to drive internal and freelancer efficiency will be key to unlocking new growth opportunities and operating leverage.
Valuation: Growth on a lower cost base key to rating
On EV/sales, Freelancer trades at a 1.0x average across FY24e and FY25e, a discount to Fiverr and Upwork’s 2.1x and a peer group average of 2.3x. Demonstrating the potential for operationally geared growth is key for a re-rating.
Key profitability target met in FY23
Total GMV decline slowed to 6% y-o-y after reaching FY20 and FY21 highs in Online Marketplace and Online Payments (Escrow), respectively. Looking at the revenue breakdown, Freelancer discloses Enterprise operations separately, but includes Loadshift in marketplace and payment services, which we also expect to be disclosed separately given its current growth rate.
Online Marketplace GMV was up 2.9% to A$132.1m, while revenue was down 2.8% y-o-y to A$44m, relating to Loadshift’s greater contribution to GMV, which we discuss below. With Loadshift and Enterprise strength (see Exhibit 1), we assume the retail platform’s performance was due to a prolonged recovery post-FY20 highs relating to pandemic demand for freelancers.
In Escrow, GMV fell by 7% y-o-y to A$889m and revenue by 10% y-o-y to A$9.1m, primarily from subdued domain name transactions in FY23. However, as detailed below, Q4 volumes rebounded and there are several positive lead indicators for FY24, including two new e-commerce partners.
Exhibit 1: Summary of results, FY20–23
A$000s |
FY20 |
FY21 |
FY22 |
FY23 |
GMV |
||||
Total |
841,274 |
1,212,901 |
1,081,900 |
1,029,800 |
y-o-y change (%) |
14% |
44% |
-11% |
-6% |
Online Marketplace |
141,574 |
133,901 |
128,400 |
132,100 |
y-o-y change (%) |
8% |
-5% |
-4% |
3% |
Online Payments |
699,700 |
1,079,000 |
953,500 |
888,600 |
y-o-y change (%) |
15% |
54% |
-12% |
-7% |
Revenue |
||||
Marketplace and payment services |
47,742 |
43,374 |
42,305 |
40,592 |
y-o-y change (%) |
6% |
-9% |
-2% |
-4% |
Enterprise services |
2,785 |
2,725 |
3,286 |
3,672 |
y-o-y change (%) |
-46% |
-2% |
21% |
12% |
Payment services |
8,244 |
11,320 |
10,069 |
9,070 |
y-o-y change (%) |
9% |
37% |
-11% |
-10% |
Source: Freelancer
Notably, Freelancer achieved a key profitability target in FY23, reaching EBITDA positivity in both divisions. As shown in Exhibit 2, profitability was achieved via cost optimisation, primarily by reducing staff who were originally hired to support rapid growth seen in FY20 and FY21.
Delivering this profitability milestone supported the group’s net cash position of A$21m by year-end, below our forecast of A$24.1m, due to working capital movements.
Exhibit 2: Reaching EBITDA positivity across the business
A$000s |
FY20 |
FY21 |
FY22 |
FY23 |
Profit/loss |
||||
Online Marketplace |
||||
Costs (pre-D&A, SBP) |
(44,658) |
(44,040) |
(47,050) |
(38,063) |
y-o-y change (%) |
-8% |
-1% |
7% |
-19% |
EBITDA |
5,868 |
2,059 |
(1,459) |
6,201 |
y-o-y change (%) |
205% |
-65% |
-171% |
N/A |
Profit/(loss) before tax |
(496) |
(4,780) |
(7,449) |
(62) |
y-o-y change (%) |
-64% |
864% |
56% |
-99% |
Online Payments |
||||
Costs (pre-D&A, SBP) |
(8,319) |
(9,407) |
(9,356) |
(8,487) |
y-o-y change (%) |
11% |
13% |
-1% |
-9% |
EBITDA |
(75) |
1,913 |
713 |
583 |
y-o-y change (%) |
-178% |
N/A |
-63% |
-18% |
Profit/(loss) before tax |
(396) |
1,667 |
419 |
281 |
y-o-y change (%) |
21% |
N/A |
-75% |
-33% |
Source: Freelancer
Loadshift drives FY23 and short-term growth forecasts
In our initiation note, we discussed the FY23 transition from a classified membership model to a marketplace model. The classified membership model relies on recurring monthly fees, while the marketplace model allows for a take rate per posted job and potential premium monthly income, underpinning the greater growth opportunity. We note that Loadshift revenue most likely lags GMV expansion given the lower take rate (5–10%) versus the core marketplace (10–15%), therefore growing Loadshift’s take rate offers substantial revenue potential.
Management believes the updated model encourages increased freight job postings by streamlining the process to find qualified specialists and establishing a more certain pay structure for contractors. The benefits are evident from the 220% y-o-y quotes rise in Q4 to 73,017 and 272.7% uplift in awarded jobs.
The group’s marketplace strategy was key to Loadshift’s performance in FY23. We believe replicating this strategy could be used to enter and drive strong growth in new verticals.
Momentum in Freelancer Enterprise improved, with the division delivering 55% y-o-y revenue growth in Q4 versus 12% for the full year, with highlights including:
■
Deloitte MyGigs expanding beyond the US to Europe, Middle East and Africa and Asia-Pacific, with similar global roll-outs for a oil/gas giant, a beauty leader and governments expected to contribute in H124.
■
Volumes in global field services grew by over 150% in India in FY23, but we believe expansion into the much larger US market offers the greatest opportunity. While volume growth was impressive, project sizes in India are substantially smaller than in the US, which requires significantly less volume to see a similar material benefit. In the US, management expects to move into installation work, rather than the more capital-intensive hardware repair, which could also drive margin progression. We expect to see progress from FY24.
■
NASA competitions generated a robust US$1.05m in FY23 revenue and US$340k in Q4 alone.
AI underpins the mid-term outlook
In the FY23 presentation, management discussed how the emergence of generative AI has bolstered project quality and efficiency, but also expanded the skillset of its freelancers. Further use of AI could boost liquidity and GMV, as CEO Matt Barrie noted small businesses still find it more effective to utilise freelancer specialists on AI platforms versus doing it in-house. The combination of a global pool of freelancers, many from developing countries with lower costs, and the quality boost from AI tools is compelling for smaller businesses, especially those with tightening budgets.
Additionally, Freelancer’s investment in AI is creating internal efficiencies, including updated features like an automated AI agent that can build the scope of a client’s project end-to-end, facilitating operating leverage.
|
Exhibit 3: Gross payment volumes in Freelancer and Escrow, FY10–23 |
|
|
Source: Freelancer. Note: *Gross payment value (GPV) is the sum of revenue and GMV. **Including Loadshift and Enterprise. |
In Escrow, domain name transactions remain the largest GMV contributor, driven by trends like crypto demand in FY21 when gross payment value (GPV) peaked. Management uses venture capital funding as a barometer for domain name transactions activity. While investment has declined from the FY21 high, it shows signs of stabilising in FY24. Escrow expects a more pronounced AI investment rebound, potentially driving domain transactions across traditional and exotic types, especially ‘.ai’ domains, where transactions reached a record high in Q423.
Notably, Escrow signed partner agreements with a Fortune 500 e-commerce platform and a Nasdaq-listed e-commerce company, which should support revenue diversification outside of domain names. While deployment is expected in H124, the time it will take for consumers to become aware of and comfortable with the service means these deals will likely drive mid-term rather than near-term growth.
Updates to forecasts
As previously discussed, we believe Loadshift currently provides the greatest opportunity in the short term, while new opportunities in AI and several pipeline opportunities could drive a return to growth in the other divisions. That said, we have moderated our revenue forecast assumptions to reflect the FY23 progress.
Exhibit 4: Updates to forecasts
FY23 |
FY24e |
FY25e |
|||||||
A$m |
Reported |
Forecast |
% difference |
New |
Old |
% change |
New |
Old |
% change |
Revenues |
53.3 |
54.8 |
-2.6% |
57.3 |
59.5 |
-3.7% |
61.6 |
64.7 |
-4.8% |
y-o-y change |
-4.2% |
-1.6% |
-2.6% |
7.5% |
8.6% |
-1.1% |
7.5% |
8.8% |
-1.3% |
Gross profit |
44.2 |
46.2 |
-4.2% |
48.3 |
50.2 |
-3.7% |
52.0 |
54.6 |
-4.8% |
Gross margin |
83.0% |
84.3% |
-1.6% |
84.3% |
84.3% |
0.0% |
84.3% |
84.3% |
0.0% |
Operating EBITDA |
0.6 |
0.3 |
85.1% |
2.5 |
1.8 |
38.2% |
3.6 |
3.1 |
17.3% |
Operating EBITDA margin |
1% |
1% |
0.5% |
4% |
3% |
1.3% |
6% |
5% |
1.1% |
Normalised net income |
0.2 |
0.0 |
392.2% |
1.6 |
1.1 |
44.7% |
2.3 |
1.9 |
18.7% |
Normalised diluted EPS (c) |
0.05 |
0.01 |
394.3% |
0.34 |
0.24 |
44.8% |
0.51 |
0.43 |
18.8% |
Net debt/(cash) |
(21.0) |
(24.1) |
-12.7% |
(26.1) |
(27.1) |
-3.7% |
(30.8) |
(31.6) |
-2.4% |
Source: Freelancer, Edison Investment Research
The group believes that costs were at a more stable position at end-FY23, after a 19% y-o-y reduction in opex. We expect that the use of AI technologies will allow costs to grow at a slower rate than revenue; in FY24 and FY25 we forecast a 5% y-o-y increase in staff costs, the largest contributor to opex. We expect lower forecast costs to more than offset our lower revenue expectations, leading to greater operating EBITDA and normalised net income margin expansion than previously forecast.
Exhibit 5: 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 |
57,323 |
61,630 |
Cost of Sales |
(7,651) |
(9,455) |
(9,786) |
(9,689) |
(8,740) |
(9,093) |
(9,001) |
(9,677) |
||
Gross Profit |
44,024 |
48,456 |
48,985 |
47,730 |
46,920 |
44,241 |
48,322 |
51,952 |
||
EBITDA |
|
|
(672) |
2,044 |
5,793 |
3,972 |
(746) |
6,784 |
8,657 |
9,747 |
Operating EBITDA |
|
|
(705) |
(1,084) |
(447) |
(2,690) |
(6,579) |
608 |
2,495 |
3,585 |
Normalised operating profit |
|
|
(1,202) |
(1,170) |
1,081 |
(922) |
(5,216) |
2,051 |
3,921 |
5,007 |
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 |
3,806 |
4,892 |
||
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 |
2,218 |
3,304 |
Profit Before Tax (reported) |
|
|
(1,793) |
(1,718) |
(862) |
(3,113) |
(7,030) |
219 |
2,103 |
3,189 |
Reported tax |
309 |
127 |
216 |
856 |
1,617 |
(30) |
(631) |
(957) |
||
Profit After Tax (norm) |
(1,235) |
(1,389) |
(670) |
(2,957) |
(6,871) |
234 |
1,552 |
2,313 |
||
Profit After Tax (reported) |
(1,484) |
(1,591) |
(646) |
(2,257) |
(5,413) |
189 |
1,472 |
2,232 |
||
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 |
1,552 |
2,313 |
||
Net income (reported) |
(1,484) |
(1,591) |
(646) |
(2,257) |
(5,413) |
189 |
1,472 |
2,232 |
||
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 |
0.34 |
0.51 |
EPS - diluted normalised (c) |
|
|
(0.27) |
(0.31) |
(0.15) |
(0.66) |
(1.52) |
0.05 |
0.34 |
0.51 |
EPS - basic reported (c) |
|
|
(0.33) |
(0.35) |
(0.14) |
(0.50) |
(1.20) |
0.04 |
0.33 |
0.49 |
Dividend (c) |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Revenue growth (%) |
0.0 |
12.1 |
1.5 |
(2.3) |
(3.1) |
(4.2) |
7.5 |
7.5 |
||
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 |
15.1 |
15.8 |
||
Normalised Operating Margin |
(2.3) |
(2.0) |
1.8 |
(1.6) |
(9.4) |
3.8 |
6.8 |
8.1 |
||
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 |
34,335 |
39,372 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
3,474 |
4,003 |
5,593 |
6,448 |
4,825 |
3,927 |
4,969 |
5,342 |
||
Cash & cash equivalents |
33,211 |
32,014 |
34,341 |
30,316 |
23,358 |
21,153 |
26,263 |
30,927 |
||
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 |
49,159 |
51,430 |
Creditors |
35,898 |
36,607 |
39,166 |
41,259 |
39,647 |
36,529 |
40,679 |
42,950 |
||
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 |
28,412 |
30,759 |
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 |
24,738 |
27,085 |
CASH FLOW |
||||||||||
Op Cash Flow before WC and tax |
(717) |
1,623 |
4,066 |
2,637 |
(943) |
4,922 |
6,209 |
6,972 |
||
Working capital |
(660) |
300 |
5,094 |
(1,463) |
(3,930) |
(3,505) |
3,108 |
1,897 |
||
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 |
9,431 |
8,985 |
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) |
5,110 |
4,664 |
||
Opening net debt/(cash) |
|
|
(31,908) |
(33,090) |
(31,893) |
(34,055) |
(30,195) |
(23,237) |
(21,032) |
(26,142) |
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) |
(26,142) |
(30,806) |
Source: Edison Investment Research, company accounts
|
|
Research: Healthcare
Having shown cognitive activity in prior trials, Actinogen began its XanaMIA Phase IIb study of lead candidate Xanamem in patients with cognitive impairment (CI) associated with mild-to-moderate Alzheimer’s disease (AD). The study will assess c 220 biomarker-positive AD patients, with interim results expected in H1 CY25. Actinogen recently reported results from a human positron emission tomography (PET) imaging study, which affirm the drug’s mechanism of action (MoA) in healthy subjects and patients with AD, by showing that Xanamem exhibited high target enzyme occupancy designed to impede cortisol production, as well as favourable safety and tolerability. Our risk-adjusted net present value (rNPV) remains essentially unchanged at A$528m.