Improving customer acquisition in H224

Freelancer reported a gross marketplace value (GMV) decline of 7.1% for FY24 resulting in a revenue decline of 4.3%. The Freelancer division saw a small GMV decline of 1.3% for FY24 and a larger 8.2% decline in revenue over the same period, but for Q424, GMV increased 0.5% y-o-y and was 1.4% higher y-o-y in US dollar terms. Escrow.com GMV declined 7.9% in FY24 but, due to higher take rates, grew revenue 14.5%. Company adjusted operating profit, which excludes unrealised FX losses of A$1.7m in FY24, was A$0.8m in FY24 compared to A$0.6m in FY23. Freelancer reported a net loss after tax of A$0.8m and closed the year with cash of A$23.2m, or A$10.8m net of lease liabilities. We have revised our FY25 forecasts, reflecting higher GMV and revenue growth and higher profitability, and introduced FY26 forecasts.

Using AI to drive growth and efficiency

As well as using AI tools internally, Freelancer is supporting its freelancers to use AI so that the company can provide the widest range of skills at the lowest cost and with the highest quality. AI also represents a growth category where clients rely on freelancers to help them on their AI journeys. In the enterprise business, this includes using freelancers to train and provide data to large foundational models.

Valuation: Promising signs of volume growth

On an EV/sales basis across FY25 and FY26, Freelancer trades at an average discount of 59% to its closest peers (Upwork and Fiverr). Sustained growth in GMV and revenue towards the company’s targets will be key to reducing this gap. Catalysts could include higher retention rates in the core marketplace, enterprise contract wins, vertical diversification for Escrow.com, and growing GMV and take rates for Loadshift.

Review of FY24 results

Freelancer reported a revenue decline of 4.4% y-o-y to A$51.0m. This was marginally lower than our $51.5m forecast. Gross margin was slightly lower than the prior year, mainly due to higher two-factor authentication costs. Company adjusted operating profit, which uses the reported loss before tax of A$1.3m and adds back share-based payments, unrealised FX losses (A$1.7m in FY24) and non-lease-related depreciation, was A$0.8m in FY24 compared to A$0.6m in FY23. We note that this measure accounts for the lease payments made for premises, which are spread across depreciation (A$4.5m) and interest costs (A$1.3m). After a A$0.5m tax credit, the company reported a net loss after tax of A$0.8m.

Cash and cash equivalents stood at A$23.2m at year-end, up from A$21.0m at the end of FY23. The company generated an operating cash inflow of A$5.8m, offset by lease payments of A$5.0m and capex of A$0.1m, resulting in a net cash inflow of A$0.8m. Net cash after leases of A$12.4m was A$10.8m at year-end, up from A$4.0m at the end of FY23.

Freelancer saw a reinvigoration of demand in Q424

The Freelancer division saw a small GMV decline of 1.3% for FY24 and a larger 8.2% decline in revenue over the same period. For Q424, GMV increased 0.5% y-o-y and was 1.4% higher y-o-y in US dollar terms. During Q424, the division added 1.69m new users and 173k new projects. The average project size grew 29% y-o-y to US$334, helped by a pause in a specific global fleet engagement (which typically generates a high volume of low-value projects) while the business moved to a new operating model with that client. Marketplace liquidity improved, with a 24% y-o-y increase in average bids per project to 51 and a 61% y-o-y increase in entries per contest to 527. The company tracks various measures to assess customer behaviour, and one measure, new client deposits (value in the first 30 days after sign-up) is a lead indicator of GMV and revenue growth. In Q424, this measure increased by 18.6% y-o-y in US dollar terms and on a rolling 30-day basis, is currently up 17.7% y-o-y. The company noted that GMV on a rolling four-week basis is currently up 7.8% y-o-y in US dollar terms. The business also improved retention by 5%, providing the foundations for a stronger performance in FY25.

We discuss the operational performance of each area of the business.

Marketplace

We estimate that the core Freelancer marketplace GMV declined c 3% in FY24, but we estimate that GMV returned to year-on-year growth of 8% in Q424 as various initiatives started to take effect (more detail below). We estimate that the take rate was c 36%, versus 37% in FY23.

Enterprise

In the Enterprise segment, Freelancer earns revenue in two ways: firstly via jobs transacted via its marketplace and secondly via services undertaken for specific customers. In FY24, the business saw a reduction in enterprise service revenues to A$1.5m from A$3.7m in FY23 partly because work for one customer was completed.

Loadshift

Loadshift saw a 15% increase in GMV in FY24. In Q424, 11,284 jobs were posted, the number of quotes per job increased 12.5% to 6.3, 3,087 loads were awarded and 2,661 loads were delivered, equating to a delivery rate of 26.2%, up from 23.6% in Q423.

To improve the platform, the business has expanded the amount of information required from customers so that carriers have sufficient detail about the job to be able to accurately quote for the load. Improvements have been made to the price estimator tool and load tracking has been added. Zoom-based in-app video and audio calling was recently deployed, making it easier for carriers to communicate with customers.

Escrow.com benefited from record transaction in Q3

Escrow.com GMV declined 7.9% in FY24, although the company generated its largest ever transaction in Q324, with a US$50m IPv4 transaction, which resulted in GMV growth of 31% y-o-y in Q324. Conversely, divisional revenue increased 14.5% y-o-y helped by a notable increase in take rates (FY24 1.27% vs FY23 1.02%).

The business continued to enhance its integration offering with a major e-commerce platform (the trial of this service will continue into H125), upgraded card processing capabilities and added more support hours.

E-commerce will continue to be a priority in FY25 and the business is actively discussing partnerships in the automotive and maritime markets.

Progress against FY24 strategic priorities

At the start of 2024, Freelancer set the following product goals for the year:

1. Turn Freelancer from a painkiller to a narcotic.
2. Reinvent the world of work in the AI revolution.
3. Rethink client acquisition in a world without Google.
4. World leading UX and design that wins awards.

Turn Freelancer from a painkiller to a narcotic

The company is keen to convert clients from one-time users of the platform to loyal, repeat customers. To help move the experience of using Freelancer from a transactional one to an engaging, retentive experience, the company made the following enhancements to the platform during FY24:

• Subscriptions: allowing freelancers to bill clients monthly and aiming to improve retention by encouraging long-term ongoing work.
• Project updates: reminding freelancers to update their clients on the status of projects and aiming to improve communications between freelancers and clients.
• Workspaces: a collaborative space that brings together all collaborative tooling in one place. This aims to engage clients on longer and larger projects.
• Audio and video calling via Zoom: this was beta tested in Q424 and is due for imminent release to all customers.

Reinvent the world of work in the AI revolution

The company is focused on ensuring that freelancers stay at the forefront of AI to enhance their productivity and quality of output. This applies to both the use of AI tools by freelancers to enhance their skills and the requirements of customers who need help navigating the new AI world.

Freelancer has developed specialised AI tools and integrations for use by freelancers and has observed that many freelancers are using these tools to expand their skills to new disciplines and to deliver work faster.

In the chart below, we show the significant growth in demand for AI-related projects during FY24. Freelancer is positioning itself as the place where clients can get help with developing AI agents.

Within the enterprise segment, Freelancer is supporting companies with their AI training. Freelancer has brought onboard more than 130,000 freelancers from more than 60 distinct language groups to service this market. For one large technology company, Freelancer has provided freelancers to undertake a variety of tasks, starting with training the large language model by using freelancers with language skills outside the more widely spoken languages. In Q424, it expanded this to collection of data for use in training (eg speech, points of interest) and to technical writing services and translation services.

Freelancer has partnered with an AI technology company called Retell.ai and will use its freelancers to distribute, integrate and deliver Retell.ai’s AI agents. Examples of the kind of work the agents can undertake include phone answering, scheduling appointments or providing a hotel concierge service.

Rethink client acquisition in a world without Google

As noted above, growth in new client deposits accelerated through H224. The company has used a variety of channels to market to clients, included search engine optimisation (SEO), non-brand Google search engine marketing (SEM) and non-brand Bing SEM, and has also seen growth in direct traffic. The company also introduced a new system called IRIS to catch poor behaviour in the marketplace. The company experimented with new acquisition channels to drive client signups and will continue to develop these.

In Q424, the company launched a new marketplace for fixed-scope services, called Freemarket. We understand this is similar to the Fiverr business model. This supports a one-click, e-commerce style purchase of services.

World-leading UX and design that wins awards

In 2024, the company launched a dark-mode variant of the website and will invest further in this in 2025. A new iPad app was launched (previously tablets used either mobile or desktop variants of the site). The company hired a new head of brand marketing and built out a formal brand strategy.

Outlook and changes to forecasts

The company has outlined the following targets and priorities for FY25:

• AI leadership: launch new AI training programmes and expand partnerships with technology companies.
• Customer acquisition: double down on winning new clients, building on momentum from H224.
• Retention: prioritise client stickiness.
• Cost discipline: maintain the same discipline that saw FY24 operating costs fall by 5.8%.
• Growth targets: targeting double-digit revenue growth and sustainable profitability.

We have revised our forecasts for FY25 and introduce forecasts for FY26. We have increased our growth rate for the core marketplace GMV, reflecting the improvement from Q424. We have increased our Escrow.com take rates to reflect the higher rates achieved in FY24.

Our revenue forecast for FY25 is conservatively below the double-digit growth target; we will revisit it after the Q125 update, which should provide evidence of improvements in both the Freelancer and Escrow divisions. Our forecasts incorporate c 10% headcount growth in both years; despite this we are forecasting an increase in company adjusted operating profit for both years. We note that the strengthening of the US dollar versus the Australian dollar could provide tailwinds for revenue growth, as the majority of revenue is generated in US dollars.