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Freelancer receives higher share price target

Canaccord Genuity has released a new research report on Freelancer, upgrading its price target to A$1.75. FLN last traded at $1.48. The investment bank said the company’s half-year results beat its estimates.
Freelancer receives higher share price target

Freelancer (ASX code:FLN) is the recipient of an upgraded research report from Canaccord Genuity with a price target of $1.75.

This is up from the previous target of $1.46 following a strong half-year report. Shares in FLN are currently trading at $1.48.

The following is an extract from the report.


Another result, another upgrade...

Freelancer has reported its 1H15 results that again beat our revenue (A$16.7m vs. CGAu est. A$15.9m) and gross profit (A$14.6m vs. CGAu est. A$13.8m) estimates for FLN marketplace business.

This represents the third upgrade to our FY15 estimates in six months for the core marketplace business.

Importantly, the +41% increase in gross profit was impressive as this line item dictates the future growth profile of the business.

EBITDA of -A$0.8m is in our view effectively meaningless and reflects the company’s growth strategy of reinvesting earnings into the platform.


Earnings revisions

Our FY16 revenue and gross profit forecasts have increased by 5% and 6%, respectively. Our expectations for the commencement of revenues from Escrow.com are delayed to Sept-15 (prev. Mar-15), impacting our FY15 revenue figure.

Key metrics reported at the 1H15 result:

- +43% increase in new project and contest listings in 1H15 (1.1m in 1H15, 0.8m in 1H14 650k in 1H13);
- +28% increase in freelancers and employers registered on its platform to 16m in 1H15 (~1.1m organic, ~0.5m acquired);
- +10% increase in its effective take rate to 26.2% (23.8% at 1H14, 22.3% in FY13);
- >35% increase in number of monthly bids on projects;
- >40% increase in the number of contests entries; and
- Gross margins incrementally increased to ~88%.


Outlook

Management “expect that exceptional growth will continue in 2015” and 2H15 will be a "strategic and operational inflection point for Freelancer".

This inflection point will be driven by the integration of FLN payments platform (escrow.com) into its core marketplace, further product enhancements and the general network effect from having >16m freelancers using the platform as their virtual workplace.


We estimate FLN will invest >A$100m into growth initiatives (product development, marketing, acquisitions etc.) over the next three years.

Key priorities include:

- Scaling its recently launched Local Jobs product offering (<5% of projects posted, TAM A$800b);
- Enhancing its mobility solution (payments, job posting, interactive chat);
- Expansion into large geographies (Asia, South America, Africa etc.); and
- New value-add products (Freelancer Recruit, Showcase, Depth Products etc.).

A sleek and incrementally improving platform has enabled FLN to emerge as one of the fastest growing technology companies listed on the ASX.

Unlike its early stage peers, FLN continues to experience consistent upgrades to both revenue and gross profit forecasts (+11% since Jul-14).

Further investments in marketing and product initiatives and expanding into new regions/territories should see its "exceptional growth" rate continue in the medium term.

Following positive revisions to our growth estimates, our DCF valuation increases to A$1.75ps (previously A$1.46ps).

FLN reports a 88% gross profit margin, an implied sustainable EBITDA margin of 65%, an incremental ROIC of >30% that by our estimates is likely to drive +35% revenue CAGR for the foreseeable future.

BUY recommendation reiterated.



Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.

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