Freelancer.com (Freelancer) is the world’s largest freelancing, outsourcing and crowd sourcing market place by number of users and projects. At present, there are over 9 million employers and freelancers globally from over 247 countries, regions and territories.

FreeLancer has filed to be listed on the Australian Stock Exchange and will be listed under the code FLN on 15 November 2013. Under the IPO offer, 30 million shares will be offered to the public and 5.1 million shares will be offered to FreeLancer employees. The offer price is 50 cents, valuing the company at $218 million.

Here are some of my self-raised points and fundamental analysis on the FreeLancer.com IPO:

1. Reason for IPO





According to the FreeLancer IPO, the company intends to raise the fund to accelerate its growth in revenue. This, perhaps seem to be the most important reason for the IPO. Freelancer has not specifically provided details on how the funds will be used for which projects, etc. Under section 7.3 of the IPO, the company mentioned that it will use only US$1.25m of the estimated $14.5m proceeds to fund the acquisition of certain domain names. The remainder of the capital raising proceeds will be used to fund current and future employee’s equity incentives. Another reason the company is filing for the IPO is to facilitate greater liquidity for the company.





Increasing liquidity by listing on the ASX seems to be one of the company’s primary objectives.





2. Industry and Company Overview and Outlook





Freelancer operates in the growing online outsourcing industry. The company obtain its revenue primarily from fees generated from users posting projects on its website. Revenues are generated when projects are awarded by posters and subsequently accepted by users undertaking the projects. Therefore the key to future organic growth is the increase in the number of jobs executed between employers and their hired freelancers. The employers are usually in the Western countries while the freelancers looking for work are usually in the developing nations. The industry outlook for Freelancer is favourable. Internet penetration in both developed and developing nations are set to increase while the education levels of these in the developing nations are set to rise as well. Western nations are likely to continue to outsource jobs due the low cost of getting them done overseas.





My view is that the continued increase in the number of employers from the developed nations is the key. This is because the jobs have to be generated by those who are hiring and most of the fees are generated and paid by the ones who are doing the hiring. Growth in the number of employers and job numbers posted are theoretically smaller than the growth in the number of users from the developing nations looking for work.





On page 46 of the prospectus, the competitor oDesk is shown as having 4 million and Elance 3.6 million user accounts versus Freelancer’s 9.01 million. Freelancer has more user accounts and operates in more regional market places than the other two competitors. Therefore it is safe to say that Freelancer is the leading force in the online outsourcing industry.





3. Financials and Valuation





Freelancer’s revenue growth is very impressive. The company commenced in 2009 and its revenue quickly grew from $4.7m in 2010 to $18.3m in 2013, representing an annual growth rate of 42.50%. However revenue data beyond 2013 is not disclosed in section 4.5 of the prospectus (as far as I can see). At 88%, Freelancer’s gross margin is also very impressive. It has a highly scalable business model which means that it has a certain fixed cost but any additional increase in revenue does not bring up the cost up as that much.





The forecast financial year 2013 revenue is $471,000, which is not that attractive when the company will be valued at $218 million at its issue price. This puts the company on a FY13 price-to-earnings ratio of at 463 times and price-to-sales ratio of around 25 times. To put this into perspective Facebook and LinkedIn is currently around 20 times price-to-sales while Twitter would be valued at 28.6 times price-to-sales ( see source ). While we are not comparing apple to apple, on a PS ratio, Freelancer seems to be reasonably valued. Interestingly, Freelancer founder Matt Barrie has defended the 463x PE ratio, saying that LinkedIn’s PE was double that of Freelancer ( see source ).





It is very difficult to value Freelancer at its current state. The PE is justified only if the company’s earnings grow substantially. The online outsourcing sector can potentially become very large but it is just too early to tell yet.





4. The Management





Matt Barrie founded Freelancer and will be the chairman and CEO of the company after listing. There is no doubt in Matt’s ability (who is named BRW Entrepreneur of the Year in 2011) as a successful entrepreneur. However the company’s corporate governance structure if very weak with Matt holding 46% of the shares following the IPO and another board member Simon Clausen (founding investor) holding 38.5% indirectly. There are only three board members a combined interest of 87.30% of the company after the IPO. None of the board members are independent.



