Global outsourcing marketplace Freelancer Ltd (ASX: FLN) reported its 2015 results last week.

Highlights included:

  • Revenues of $38.6 million (up 48%);
  • 18.7 million users (up 30%);
  • 1.7 million jobs posted during the year (a total of 8 million to date);
  • Gross margins stable at 87%;
  • Positive operating cash flow, $32 million in cash, and no debt;
  • Finalising the acquisition of Escrow.com.

How does Freelancer make money?

Freelancer charges a 3% commission to employers when projects are accepted. Freelancers also pay a 10% commission. Optional membership plans offer additional functions, and are an attractive recurring revenue stream for Freelancer.

How big is the market?

In much the same way as the production of many goods shifted to cheaper markets in the past, a similar thing is now happening with services. Freelancer refers to research estimating that there are currently 160 million service jobs worldwide which could potentially be carried out remotely. Once a project can be done remotely, the marketplace for that work becomes global.

The outsourcing trend has been underway for many years, particularly for websites, IT and software work, which represent 34% of the projects on Freelancer. However, it also has a broad range of other projects, currently across 900 categories, including engineering, sales and biotechnology.

Freelancer has teamed up with NASA to outsource the design of robotic components; a clever way to demonstrate how complex projects can be completed through the platform.

Freelancer’s results presentation included a compelling statistic – the internet is still at only around 46% of global penetration, with 4 billion people still to connect. As more and more people from developing economies come online, platforms such as Freelancer provide an appealing way for them to market their skills to a global audience.

Freelancer now has 44 regional websites in 34 languages. In 2015, around 50% of completed projects were sourced from the US, UK and Australia, with the other 50% spread throughout the rest of the world.

A recession proof business?

Freelancer’s CEO Matt Barrie made an interesting point about the nature of outsourced work:

“Freelancer’s marketplace business is acyclical. The global financial crisis led to the original emergence of the online crowdsourcing and freelancing industries. Employers looked online to hire freelancers rather than fulltime staff, workers looked to the Internet to find new sources of employment. It was a driver of growth for our business.”

Who is the competition? 

Freelancer is the world’s biggest freelancing marketplace based on its number of users and projects. Its strategy is to focus on the lower end of project sizes in the market – ‘the widest range at the lowest cost’. The average project size in 2015 was US$156.

Within the broader freelancing market, there are plenty of competitors, including US companies Upwork.com and Elance.com. It is also conceivable that a large global internet company – such as Amazon, Google, or Ebay, could one day become a competitor in this space. However, the market is huge, and so far, Freelancer has done a good job of continuing to grow its network of users and projects.

Matt Barrie together with other company officers own around 80% of the shares on issue, meaning they are clearly incentivised to keep Freelancer on the right track.

Is it a good time to buy?

After reaching $1.93, shares have pulled back to around $1.35.

An analyst report from Canaccord Equity released this week includes a 12-month price target of $2.21, implying upside potential of over 60% from the current level. The valuation is based on the future cash flows that Freelancer will generate assuming continued revenue growth of over 40% p.a.

In my view, this assumption is reasonable, and the current price represents good value for long term investors. As with any growth stock, there is risk involved, and the current price may turn out to be either very cheap or very expensive, depending on the actual earnings growth that Freelancer can deliver.

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Motley Fool contributor Matt Bugden owns shares in Freelancer Ltd. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.