Perhaps some small glimmers of hope here, but, I suspect this will be a long slow-burn investment that may go to zero if freelancers eventually are displaced by AI.

I'm not sure what fair value would be for the Escrow business, but I currently don't place any value on the Freelancer business. Unfortunately, I don't think this is an industry that affords itself to sustainable long-term profits.

There is incremental value here for each new user or freelancer who joins (network effects), however, given the connectedness of the global freelancer economy, users/freelancers will simply shop around, and thus the unit economics of this model becomes a race to the bottom.

It is an interesting case study highlighting that network effects are meaningless if barriers to entry are low and the network effects aren't protected on other grounds (i.e. trust, value, etc.).

Red flags:

• Unprofitable
• Gross profit margin is low (~27%) and continuing to fall, reflecting that FLN's take rate continues to decline
• Flat top-line growth for multiple years
• They have significantly reduced their workforce.
• AI (Chat GPT etc) displacing demand
• Very difficult unit economics
• Low barriers to entry and high levels of market competition

Have finally been hit with Covid (dodged it for 3.5 years!) so need to go lie down, but just a few thoughts on the the Freelancer Meeting before I do:

• I was genuinely surprised to see a flat/slightly falling share count given the business has recorded a loss for ten years. There's a distinction to be made between statutory profit and free cash flow which i'll need to dig into (the latter seems much better than I would have guessed)
• Matt has been buying shares and owns 43% of the business now. Together with other board members he owns 84% of the business -- which explains the very low volume. But also points, potentially, to some conviction.
• Shares are at half the 50c IPO price from a decade ago, but the business is twice as large from a revenue perspective and (potentially) has a lot more earnings potential. in fact..
• 85% gross margins have the potential to deliver attractive operating/net margins as the business pulls back on certain coasts (Matt said a bit of bloat had crept in)
• Freelancer is 3-4x the size of the nearest competitor, so should have far superior network effects (more freelancers, which attract more jobs and so on)
• AI is a big enabler for freelancers in places like India which will make the site even better value, in Matt's view
• He's clearly a very gregarious character, but his view on VC funding and Aussie Property certainly did resonate a lot with me -- although clearly he's wrong on Bitcoin.. ;)

I have no exposure to Freelancer and not sure I ever would until there are genuine signs of improvement at the bottom line. Matt talks a good talk, but the proof will be in the pudding. Not just in reported profits but a return to top line growth.

For those interested, his SMH Keynote talk is here

His Medium blog post on AI is here

His macro voices podcast is here