freelancer.com’s IPO Prospectus Allows a Look Under the Hood of a Large Global Online Staffing Platform Business

Since we started studying online staffing platforms in 2012, there have been a lot of questions about what is really going on in these companies? How do they compute revenues? What is their cost structure like? Even at a large scale, are they making any money, getting by, or fabulously profitable? Until now, all these platform firms have remained private (with financials under wraps). But now an event in Australia is allowing us to start to get a better look.

Several weeks ago, freelancer.com CEO Matt Barrie announced that his company would be pursuing an IPO on the Australian stock exchange this year. The whole Prospectus can be found at the Investors tab at www.freelancer.com. But the key IPO/listing data are as follows:

 Click all images to enlarge.

30,000,000 shares offered to the public (5,100,000 to qualified employees) – the offer price based valuation, $218 million AUS (about the same amount equivalent in $ US). That would be about a 12 X Revenue Multiple based on forecasted 2013 revenue of $18.3 million (88 percent gross margin on total forecast 2013 platform spend of $80.9 million); based on forecast 2013, that would also be about a 35 X Earnings Multiple.

Come November 15th, it will be interesting to see how the market evaluates the stock of the company; and it will tell us something about how investors might be valuing online staffing platform businesses. Around the offer price, lower, higher? I will be marking this date in my calendar.  

Assuming the offer price of $0.50 per share and 30 million tendered shares, the company could expect to raise about $15 million in capital, to be used as described here:

After the offer, the current owners (per below) would continue to hold about 88 percent of what will be a total of 436,000,000 shares outstanding (current management continuing in its role at the then public company).

If the IPO results in a market valuation of the company of $218 million, then this will mean a liquidity event for the existing investors on the order of $190 million (with of course escrow and no doubt other restrictions).  

All of these outcomes remain to be seen. But quite a lot can be seen now, thanks to the Prospectus allowing us a look under the hood.

Before getting to that, let’s also see how the Prospectus provides us with the summary of the company’s history and milestones (from 2009 when the company freelancer.com was started, based in part on the acquisition of a previously extsing online staffing firm, Getafreelancer.com):

 

As can be seen, from 2009 to the present, the company has grown organically and through several acquisitions to become a global platform, with business units/subsidiaries in tens of different countries around ther world, and a reported number of registered users exceeding 8,000,000.

Based on this 8,000,000 user number, the company reports itself as the largest freelance marketplace platform in the world. Although the company has grown to this great scale, the claim of largest may be taken with a grain of salt. It appears that Zhubajie in China has as many total users, and we know that gross spend on platforms oDesk and Elance are well above the corresponding gross spend on platform disclosed by freelancer.com.

Below, to the left, is the gross spend on the freelancer.com platform. The 2012 number of about $50 million was what I had estimated originally last Fall (and which I mistakenly revised upward, this summer, based on some erroneous assumptions I made about the effect of two acquisitions 2012). But now we know, 2012 = about $50 million. In 2013, assuming the forecast is accrurate now in October, the annual gross spend number rises to $80.9 million (still significantly below even the 2012 oDesk and Elance gross spend numbers). Interestingly, oDesk and Elance have been, in past years, posting growth rates of at least (ususally well over) 50 percent--but strictly organic growth (no acquistions). By comparison, it appears that the freelancer.com top line has been growing more slowly, even with acquisitions occuring along the way.

 

Above, on the right hand side, we finally get a look at the “real” revenue numbers of an online staffing platform. We can see that revenues in 2012 amounted to about $10 million (and are forecasted to grow 73 percent to $18.3 million in 2013).

But what about profitability? Can a company like this be profitable?  Well, here below appears to be the answer.

According the above pro forma, the company was profitable in 2010 and 2012 (not 2011).  In 2012, the net profit after-tax of $728,000 on revenues of $10.6 million and the EBIT Margin was 6.37 percent.

In 2013, net profit after-tax is forecasted $471,000 on $18.3 million in revenue and an EBIT Margin of 3 percent. However, the 2013 numbers also deduct the costs of the IPO ($481,000); without these costs, EBIT Margin would be about 5.4 percent, and net income after-tax would probably be much closer to $1 million. 

It should also be born in mind that there is over $6 million of goodwill (from acquisitions) being carried on the balance sheet (and I have no idea at this moment of how goodwill is amortized or written-down in Australia). But we also know from the Prospectus that cash flow appears to be healthy.

All that said, at this large scale, it appears that an online staffing platform business can be operated profitably. How does the profitability compare to a traditional staffing firm? I’ll let you answer that. 

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