Since their last quarterly update, Freelancer (ASX: FLN) has added:
- Over 820,000 registered users (up from 16.91m to 17.73m). In comparison, last quarter they added 850K. With a few weeks to go until their next release, they’ll undoubtedly beat last Q’s growth (again).
- Over 604,000 projects & contests (up from 8.679m to 9.283m). In comparison, last quarter they added only 450K.
Just visit their website for a few minutes and watch the ‘Registered Users’ and ‘Projects Posted’ tickers keep climbing.
Although the last twelve months has seen exceptional growth in the company, I am not concerned about the number of registered users falling slightly behind the last announcement; 820,000 new users in one quarter is still incredible. As far as technology companies are concerned, the market invariably prefers growth in revenue as opposed to new users QoQ anyway. Increasing revenues ensure FLN’s continued success in the market.
As it stands, FLN’s marketing budget is around 15% of revenue (1H 2015 Marketing Expenses was $2.4m AUD). Therefore, the company is only spending approximately $400-500K per month on marketing and yet it managed to achieve a 39% YoY increase in contest-posting users (ie. users who generate FLN revenue), and a 41% increase in 1H 2015 revenue itself, when compared to 1H 2014.
Competition? This double-digit growth has occurred, more interestingly, while competition from other ‘freelancing’ sites has continually increased (notably from fiverr.com and upwork.com). Fiverr is limited in its offerings by default: no project can cost more than $5USD, hence the name. Fun concept, but very restrictive. I don’t think that will last forever, or they’ll merge into a new entity that offers full-scale freelancing work, regardless of the total contest price. Why create a price-ceiling for yourself and your company?
Upwork.com is an amalgamation of two former entities, O-Desk and Elance. I read a Forbes article in May (not my favourite source) about Upwork: their CEO claims total jobs of around $1billion USD (yes, 1 billion USD) and they take a 10% cut, so (unaudited) revenue would be $100m USD; if we can believe their CEO and a private company's statements anyway. Considering Upwork.com raised another $30m USD in August 2014 and they have only 9m freelancers, I’m not sure if we can believe all of their claims. After having used both FLN and upwork for small logo design contests, I found FLN easier & cheaper. Admittedly, both companies do have aesthetic user interfaces (both web & app), but cost is important for small business. My money lies with FLN winning more market share.
If you search Upwork online, you’re bound to be greeted by an advertisement from Freelancer.com, offering their own services; clearly the $500K a month marketing budget is being put to good use. Becoming a member with FLN and paying a membership fee reduces the commission charged by the company, an interesting price-difference between Upwork and FLN. In return, FLN has a continued subscription-type income base from these members.
I believe in Freelancer for the following reasons:
- Stellar management: Take a look at their CEO, his voluntary escrow until 2017 and his declining of a $400m+ offer for the entire company prior to the IPO. The deputy CFO was working Sunday the 3rd of January, replying to investor emails at 1am AEST (read: 1 am AEST) and preparing for their results release in the coming weeks. Peter Lynch always favoured companies whose executives put in work, particularly during holiday periods when other executives are in the Maldives or in Colorado skiing and unreachable, even by email; I try and do the same.
The management also hold roughly 80% of the company’s shares (directly or beneficially), so it’s easy to see where their loyalty lies. Matt Barrie (CEO) has 42.4%, Simon Clausen (Non-executive director) has 34.6%, and Darren Williams (the CTO) has 2.5%. All three have purchased shares in the past two financial years. Matt & Simon were also co-founders in a tech venture bought out by the Intel Corporation back in 2013.
- Great product with future growth potential: I know many businesses that use the FLN website and/or app regularly for small projects and recommend it, from simple logos, complete websites or even mobile apps in the $AUD thousands; the company even had NASA launch several contests for their space programs. FLN has over 30 supported languages and 20 supported currencies; important factors when the remaining half of the world’s population that are yet to be connected to the internet, come from non-English speaking countries. As more and more users join the internet, their potential pool of customers grows with it; even more so in under-developed countries where working remotely is the norm.
- No net debt. FLN had $27.5m in liabilities at last results, but had over $30m in cash (up from $20m the year before). Corporate governance is strong, with cash at bank thus far outweighing liabilities in each reporting period.
- Acquisitions: Such as WarriorForum and Escrow.com, that will continually be earnings-accretive in the coming quarters. Escrow will add US $5m to FLN’s revenues (the key piece here being ‘USD’; stay down, AUD, stay down). While Escrow is only currently offered in the US (and hence, USD), FLN’s capacity with foreign languages and currencies will undoubtedly be a cost-synergy they’ll wish to utilise to improve escrow’s international reach. Escrow.com is regularly used for high value transactions and is a preferred method for buying and selling domain names. Escrow.com was used to buy Uber.com, Instagram.com, and Snapchat.com (among many, many other high-profile companies. The full list is available on Page 70 of FLN’s Q3 results).
This is merely my opinion based on the facts available to the public about FLN. As always, do your own research. Double-digit revenue growth isn't very common in the current economic climate. Good luck.
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