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Freelancer looks to China for large scale online jobs growth

With twice as many Chinese on the internet as Americans, there is potential for Freelancer to grow as more jobs move into the cloud. The company can also leverage its secure online escrow services provider Escrow.com as well as its move into local jobs.
Freelancer looks to China for large scale online jobs growth

Leading online freelancing market Freelancer (ASX:FLN) expects growth to continue in 2015 as it has each year for the last five years since the company was founded.

This comes as the remaining 60% of the world’s population joins the internet. Already, there are twice as many Chinese on the internet as Americans.

Freelancer recorded revenue of $26.1 million in FY2014, up 39%, with gross margins a mouth watering 87.1%.

It also had break even operating cashflow in FY2014 with total cash as at 31st December 2014 of $20.2 million and no debt.

The company recently acquired the world’s first secure online escrow services provider Escrow.com for US$7.5 million in cash.

This gives Freelancer a captive payments service that mirrors eBay’s purchase of Paypal.

As with Paypal, Escrow.com will be run as a standalone business that is especially important in growing business with third parties.

Its acquisition provides large opportunity for growth and synergies with Freelancer’s core offerings and provides substantial potential for growth given its low margin.

Escrow.com had FY14 gross payment volume of US$265 million and over US$2.2 billion in secured transactions to date.

Freelancer has also propelled itself into the burgeoning online local services market, which could be valued at between US$400 billion to US$745 billion, up to 10 times larger than its estimates of the global online freelancing market.

Like Amazon, the company has existing users that it can market local services to, making it attractive and synergistic.


Online Marketplace


Freelancer’s operates the world’s largest freelancing and crowdsourcing marketplace in terms of users and projects that is changing the global dynamics for people.

It has more than 15.7 million users with the total value of projects and contests posted reaching US$2.4 billion.

There is further potential for growth with the McKinsey Global Institute estimating that 160 million jobs, or about 11% of the projected 1.46 billion services jobs worldwide, could in theory be carried out remotely, barring any constraints in supply.

 
Industry Drivers

Global population is over 7.1 billion with 42.3% already on the internet while the other 4.1 billion people live on less than $10 a day or less and are connecting at a tremendous pace.

The first thing they are looking to do online is raise their socio-economic status.

This is supported by ease in which to learn a trade given the wealth of human knowledge that is now available online.

A revolution is also occurring in online education with options such as Coursera, Udacity, Khan Academy and edX.

In addition, 86% of users of top 10 U.S. sites are already foreign.

Every industry is being disrupted rapidly, and becoming dominated by software companies with white collar job functions all headed to software and moving into the cloud.


Analysis

The company is in the midst of strong global growth as its digital brands permeate each geographical region and uptick in internet usage.

The user base growth is compelling and the key to the platform it has grown. With gross margins circa 87%, providing for more of each dollar of revenues - sets the scene for future earnings growth.

The company has been a star sharemarket performer. We expect further growth in valuation, tracking user growth.

Revenues are the key metric to assess Freelancers success in attracting freelancer and job posters to grow its marketplace at this early stage of its growth.

This is highlighted by the company’s revenue of $26.1 million in FY2014 an increase of 39% from the previous corresponding period.

As such, we believe that the high sales growth rate Freelancer has enjoyed is an accurate reflection of the company’s valuation driving a higher EV/sales multiplier.



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