Sydney based Freelancer (FLN.AX), is the world’s largest online freelancing and crowdsourcing marketplace. Since listing on the ASX in November 2013, the Company has more than doubled its users to 26 million, and increased annual revenue by 395% to A$52.7 million. Despite what seems to be a stellar result for the tech start-up founded by Matt Barrie back in 2009, the share price has fallen from the 15 November 2013 opening price of A$2.50 all the way back to today’s closing price of A$0.53. Just 3 cents higher than the initial public offering.
But it seems Barrie and founding investor Simon Clausen still have faith in the outlook. Nearly A$2.4 million worth of faith to be precise.
Between March and November this year Clausen and Barrie have bought on market just over 3.8 million shares, increasing their ownership collectively to 77% of the Company at an average price of A$0.61 per share.
They still have a long way to go before they buy back the A$35 million worth sold back in 2015 at $1.40 per share, which according to Barrie was at the behest of the bankers that ‘begged’ him to increase liquidity (Caitlin Fitzsimmons, Australian Financial Review 5 August 2015).
Perhaps the reason for the weakness is the proceedings currently before the Federal Circuit Court brought by former employee Matthew O’Kane (Misa Han, Australian Financial Review 25 October 2017), however even with that in mind I struggle to comprehend that after multiple acquisitions, a fourfold increase in revenue, and doubling the user base that Freelancer could be worth only a mere 9.6% more than what was affirmed by a bunch of investment bankers when they underwrote the IPO back in 2013.
A review of the Company’s recent announcements did provide some reasons to be pessimistic; such as flat earnings growth and a tough first half FY2017, but it also gave many reasons to be optimistic. Despite an 18% drop in gross payment volume across the Freelancer platform and a 24% drop across ‘Escrow.com’, (a payment facilitator acquired by the group in 2015), net revenue remained unchanged versus the previous corresponding period. The decline in Escrow payments was said to be the result of system features being turned off for upgrades in January 2017, and some user attrition after implementing identification checks to increase anti-money laundering security. Effectively the ‘Paypal’ of high-end goods, Escrow holds the buyer’s funds for the seller until the purchased goods are sent to, and approved by the buyer. The nominal fee charged for the service is a small price to pay to reduce transaction risk for both parties. Even ebay.com endorses the platform on their website stating, “You should only use Escrow.com, ebay’s approved escrow service.”
Also announced was the release of the Escrow API, an interface that allows developers to easily integrate and use Escrow’s payment platform. As the propensity for consumers to make purchases online increases, as does online fraud, I would assume a trustworthy payment facilitator would be a welcome addition to any high-end online marketplace.
Prior to the market update in October this year that saw the price rally 28%, critics called Freelancer the fallen tech star reporting that for the share price trend to turn, the Company needs to return to growth (John McDuling, Sydney Morning Herald 9 October 2017). The second half of FY17 might be the turn of the tide on the back of the cryto-currency boom as the Company noted an 82% increase in the demand for Bitcoin specific skills by platform users (Freelancer Press Release, 25 October 2017). It will also be the moment of truth for the changes implemented across Escrow and Freelancer during the year to see if they produce the required results.
Given that almost 82% of the outstanding shares are held by the top shareholders, I would imagine if the 2H17 report demonstrates a return to growth that the move to the upside will be substantial. For that reason, I have added my name to the registry by purchasing a parcel at $0.62 on the day of the API announcement. In hindsight it appears that I may have bought too soon, but I will be looking to add in the coming days hopefully in the low $0.50’s.
Regardless of my confidence, the question remains as to whether the recent on market buying by Barrie and Clausen is a sign of good times ahead, or simply blind optimism from the proud parents.