While most companies in Australia focus on what they can dig out of the ground, or grow on top of it, one local tech company has been building a global platform that aims to fundamentally change the way we think about work. Disrupting the world's employment marketplace is an ambitious goal, but also one with huge potential payoffs.
That potential has investors excited. Very excited! The company, Freelancer.com (ASX: FLN) has been trading at a trailing price to earnings ratio of over 700. By that measure it is arguably the most expensive tech company in Australia – but is it doing enough to justify that valuation?
Freelancer.com is an online marketplace that allows companies to outsource tasks to the other side of the world and for a fraction of the cost of producing the same work themselves. It focuses on one-off projects – designing a logo, or building a website – with typical jobs being sourced for as little as $50 to $100. The company's global user base of freelancers and employers now numbers over 10 million and spans almost every country in the world.
Viva La (Workers) Revolution!
Freelancer.com has put itself at the forefront of a revolution in the way we think about work. The impact on new ventures is particularly profound. For the first time in history, an Australian entrepreneur can list a project on Freelancer and have an entire website built by an experienced computer programmer living in Bangladesh for $100.
Freelancer's CEO Matt Barrie has not stumbled upon this revolution by chance. A serial-entrepreneur, Barrie started Freelancer after searching for the most overlooked mega-trend he could find. Barrie then launched himself into the space, with a series of acquisitions and mergers that would make even the most aggressive Silicon Valley titan blush. The result is that Freelancer now dominates its industry along with its long-time rivals oDesk and Elance.
In December last year, oDesk and Elance announced they were merging – a move that was no doubt driven in part by Freelancer's initial public offering a few months earlier.
A Shrewd Strategist
Matt Barrie has so far proved himself to be a very shrewd operator. The company's aggressive expansion has allowed it to reach critical mass very quickly and has reinforced the strong network effects that can be found in online marketplaces. This approach is already paying dividends with the company growing sales at over 77% in 2013.
Most fast-growing online companies are happy to lose money for years while they prove out their model and gain users – claiming as their mantra: 'first become ubiquitous, then become profitable'. Matt Barrie has taken a different approach, and instead ensured that Freelancer was cash flow positive from day one. This has meant that the company has been able to spend its time focussing on development and user growth, without needing to regularly take its eye off the ball to raise more capital.
It also makes the price to earnings comparison a little tough on Freelancer – since many tech start-ups do not even have earnings and are instead valued entirely on their sales growth.
Nickels and Dimes
If there is one aspect of Freelancer's strategy that could limit its long term potential it is that the company has thus far only focussed on the micro end of the outsourcing market – one-off projects with a relatively low cost.
Rivals oDesk and Elance have a greater focus on building long-term ongoing relationships between companies and their outsourced workers. As the industry matures, it would seem that most companies would prefer the lower search and transaction costs that sticking with a few great freelancers offers. For oDesk and Elance it results in more reliable recurring revenue streams and stickier customer relationships.
Foolish takeaway
Freelancer.com has more potential than almost any company listed on the ASX – but with its current price tag of over 700 times trailing earnings it is fair to say that a lot of that potential is already baked in to the share price.
However, Matt Barrie has done an excellent job thus far, and is not a man to be underestimated. Given Freelancer's huge potential and shrewd growth strategy it is definitely one to keep your eye on.
