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Consensus community valuation
$0.800
Average Intrinsic Value
53.8%
Undervalued by
Active Member Straws
#Project Count
Last edited 4 months ago

Re: MarkMet

I've been logging the users and projects numbers from the Freelancer website for 1.5 years.  So I have some info that is semi-public (available for anybody caring to log it, but more timely and granular than the announcements released to the ASX).

So my method is not that complicated.

Now that I have >1 year data, I can start tracking YoY monthly changes, which is nice.  Image attached.

See Oct-Dec for the upcoming quarterly numbers.  Oct +11%, Nov +19%, Dec +37% YoY.  All point toward strong projects numbers in the quarterly, and probably gross platform volume too.

The January +6% is only a partial month, since January has 3.5 days remaining.  But that'sthe start of next quarter - Jan on track for +20% or so YoY.

I can't be sure whether their revenue and cashflow will improve along with the projects count, since for exmaple, they could have run a promotion of discounted project fees.  But I'm confident enough to have made a big bet in advance of the quarterly that this is somewhat of a turning point.  Since last year was quite flat, but the past 4 months seem to have returned to growth.

I'm not sure where I came up with the +36% projection in my previous straw, since the image I attached shows a 21% rise in projects for Q2 vs Q2 last year.  Anyway, +21% is still good.

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#CYQ4 Prediction
Added 5 months ago

I was going to predict the next quarter's numbers, but my analytics panel went offline for 10 days in this quarter, so I'll have to estimate instead.

Last quarter (Q3):
Users: +3.78m
Projects: +467k

This quarter (Q4, extrapolating to account for the 10 days of data missing):
Users: +2.19m (vs +1.13m in this Qtr last year = +94% YoY, and -42% Q4vQ3)
Projects: +583k (vs +428k in this Qtr last year = +36% YoY, and +25% Q4vQ3)

So Q3 had a big spike in users - maybe some partnership agreements.
But Q4 is showing an uptrend in projects. I believe this is where the money lies.

Q3 quarterly showed freelancer GPV +7% YoY while my numbers show projects actually -4% YoY for that quarter. So they must have started earning higher fees per project YoY in that quarter.

Anyway, for Q4, my numbers show projects +36% YoY, so I'm expecting the GPV to be up strongly this quarter (maybe +36% or so, unless fees per project was significantly down).


And to put it into solid numbers, last quarter had GPV of $45.7m. I'm expecting $57.1m for this quarter (based on projects being +25% Q4vQ3, assuming fees per project to be flat). I think $46m is the quarterly record for the Freelancer platform, so if I'm right about $57m, then we should expect a jump in SP? Maybe cashflow positive?

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#Bull Case
Added a week ago

Gig economy getting a shot in the arm from Corona. Good momentum pre-virus, capital light, strong balance sheet. 

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#RiskReward
Last edited 4 months ago

I have held Freelancer shares in my personal portfolio since 2016, throughout which time very little has been going right for the company. Revenues took a hit and Gross Payment Volumes (GPV) declined whilst both job postings and user numbers continued to increase. Costs blew out related to the escrow.com acquisition and revenue from the core Freelancer.com division underperformed.

This dynamic seems to have turned around recently with FY18 GPV up 26% at group level and 7% within the company’s core Freelancer.com division. Due partly to the fee structure (a far lower % of GPV is taken as revenue from Escrow.com payments) group revenue grew just 3.2%. This is a key risk as the company’s execution taking fees from GPV processed is what ultimately may bring it undone.

In FY18, costs were actually lower and efficiencies look to have been realised from the Escrow.com acquisition. It is also worth noting that Escrow’s operations from a cash basis are extremely attractive and effectively allow the company negative working capital as payments are held in ‘escrow’ until transfer conditions are met. This fast-growing segment currently contributes around 14% of group revenue, and this number looks set to increase rapidly over coming years.

The upside is here is the company’s smaller, much newer Freelancer Enterprise offering. If the company can continue to win contracts here, Freelancer shares $FLN may prove lucrative. I think the risk/reward tradeoff currently is compelling.

At this early stage, it is still very difficult to value Freelancer and much will depend on the company’s ability to maintain gross margins as well as keeping costs under control, however the company has long promised scale and it looks as if 70-80% of additional revenue may fall to the bottom line (over the short term, at least).

Currently, I await an update from the company due Monday (29/04).

Please see attached, DCF calculations.

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#RiskReward
Last edited 2 months ago

Until today, I had been with Freelancer in my personal portfolio for 4 years. Largely I think that the company has not failed drastically, nor has it fallen far from the expectations that I posted ~9 months ago within the previously attached DCF, though I have cut this both from my personal and strawman portfolio.

Freelancer typically is very difficult to predict in terms of growth rates from one quarter or one year to the next, though it is notable that the last few quarters have been softer than the market was expecting. It appears Freelancer has again fallen out of favour due to this fact with the wider market.

I have been thinking quite hard recently about the sort of business model that might have difficulty in the face of COVID-19, as well as what a broader weakening of on-market conditions will mean for stocks in my portfolio that are yet to be profitable. The conclusions that I have drawn about businesses that may/may not be able to survive short term disruption are varied, though in the case where we might experience long-term depression of on-market valuations, the impact can be summed simply by saying "funding risk has just become a structural problem."

Freelancer seems at first glance to be fully funded, with $32m cash on the balance sheet as at 31/12/3019 and achieving +$1.8m FCF throughout the prior year, however the issue that I have is in the case that there is any disruption to Freelancer's working capital.

Currently, Freelancer holds a non-cash working capital deficit of $37.6m. My understanding of this fact is that a large amount of what the company carries as "trade and other payables" is in fact user money that is held by Freelancer in 'Escrow' until a job is complete. In most recent accounts, the company attributed $32.6m in liabilities to "user obligations."

The cash that Freelancer retains for this purpose is no way negative and can be a very powerful working capital tool under normal circumstances, though it is worth pointing out that disruption to ordinary business is becoming increasingly certain in most parts of the world over the coming months. It is not clear what impact shut downs and lock-ins will have on the nature of Freelancer's business, though it is difficult to argue that it will be a positive one. I would think that a large portion of freelancers will be able to complete the kind of work typically found on the site from home and I would expect, in fact, that this is the norm. The company does carry large amounts of government work as well as work in engineering and logistics industries that certainly will not come to a standstill, though my concern is mostly surrounding the large proportion of graphic design work that is posted on Freelancer. If small, consumer-facing business is struggling worldwide I would think that far less design work would be required and it is unclear for how long this trend may continue.

It is also worth noting that Freelancer's cost base has been shown to be rather rigid. Again, ordinarliy this has been a feature of Freelancer's business that has impressed me as its combination of strict cost control and high gross margins proves excellent operating leverage, though it is not one that makes me comfortable that the company is in a robust position to handle such an unknown disruption as the fall-out from COVID-19.

With uncertainty surrounding the impact that disruption will have on Freelancer's top line, uncertainty surrounding cash flows used to adjust non-cash working capital in the case of a slow down in GPV from the Escrow business, and uncertainty surrounding on-market valuation and the associated cost of capital if funding did need to be raised, I have concluded that risks to Freelancer currently outweigh the reward.

I will continue to follow business progress closely and remain interested in purchasing shares/re-adding to strawman in the future.

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