Small Caps | Dec 09 2014
This story features FREELANCER LIMITED. For more info SHARE ANALYSIS: FLN
-39% rise in first half earnings
-Break even likely by 2016
-Risk in unknown cash outlays
By Eva Brocklehurst
Freelancer ((FLN)) has struck a note with Canaccord Genuity, posting a first half result that exceeded forecasts. Freelancer is a global operation, connecting small business, consumers and start-up companies with a global workforce of skilled online freelancers. Market liquidity is accelerating strongly, given a 30% increase in project and contest listings. Scale and market domination are the pivotal planks in the Freelancer business.
The broker likes the stock because it is a highly scalable, cloud-based business with a global model. Canaccord Genuity has a Buy rating, reducing its target slightly to $1.44, following modest revenue revisions. There are significant barriers to entry, given the time it takes to acquire comparable liquidity and build a reputation and Freelancer.com is the market leader, with a strong position connecting fragmented buyers of services with the sellers.
A 39% increase in gross profit in the first half underscores the company's future growth profile and the broker forecasts break even (net profit) by 2016. The range of the company's projects includes sponsored bidding, skill testing and project and membership upgrades, and non-commission revenue now accounts for over 50% of income.
The company is investing in its platform in order to dominate the low value, high volume end of the crowd sourcing market, wanting to attract employers and maintain a competitive advantage as the largest low-cost facilitator of labour services. The broker acknowledges risk lies in the fact the actual size of the company's cash burn is unknown.
Also, Canaccord Genuity observes the company has a long record of acquiring and integrating internet websites and there is a risk it buys sites that end up providing no synergistic benefits to shareholders, or current operations. Still, founded in 2009, the company has 32 multilingual websites, connecting freelancers to employers, with over nine million users in 180 countries.
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