Canaccord Genuity has compiled a research report on Freelancer Limited, the world’s largest freelancing, outsourced services and crowdsourcing marketplace. Here is an excerpt:
Freelancer (ASX Code: FLN) has emerged as one of the fastest growing company's listed on the ASX, however its growth profile is set to accelerate as the AUD continues its harmonious depreciation.
PRICE TARGET: A$1.75
Ticker (ASX Code: FLN)
52-Week Range (A$): 0.52 - 1.74
Market Cap (A$M): 549
Enterprise Value (A$M): 529
Cash (A$M): 20.21
Long-Term Debt (A$): 0.0
Over the previous twelve months, the AUD has depreciated 25% against the USD, which should significantly aid FLN's revenue growth profile as ~90% of its revenue is derived offshore (67% USD correlated, 10% GBP, 6% CAD), while ~70% of its costs are premised in AUD.
This positive "jaws ratio" will drive underlying/sustainable margin improvements in future periods. Furthermore, given FLN's stated strategy to reinvest residual FCF into product development (primarily headcount and marketing), a depreciating AUD will allow increased investment, further enhancing its revenue growth profile.
We expect the benefit of this virtuous circle is likely to be underestimated by investors over the medium term. A 5% depreciation in the AUD results in an additional $3m in additional capital to reinvest in building/marketing its platform.
Notably, the AUD futures curve indicates that further currency depreciation is likely over the medium term.
As illustrated below, the total projects listed on the Freelancer.com website (liquidity on the platform) continues to accelerate on a monthly basis. This +35% annualised growth in projects listed, coupled with USD currency leverage (avg. AUD project size increasing), improvements in the project conversion ratio, incremental increase in FLN's take-rate and the imminent settlement of Escrow.com (~US$5m revenue) could prove our revenue, and thus gross profit, forecasts conservative over the medium term.
Canaccord Genuity said: "We reiterate our BUY recommendation and $1.75ps valuation based on a 2-stage DCF methodology using a 12% discount rate and 6% terminal growth rate. We expect investor interest in FLN to increase given the company's strong growth profile (at 88% gross profit margins) and positive operating leverage with a falling AUD."
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