Freelancer stock explodes on market debut

Shares in the fast-growing outsourcing site Freelancer (ASX: FLN) got off to a flying start on Friday when it debuted on the Australian Securities Exchange, surging more than five times its initial value upon the market’s open, which saw it briefly become a $1 billion company.

The website competes for the growing number of freelance writers, graphic designers and programmers who then bid to work on small assignments. According to the company, it has facilitated a combined US$1.2 billion worth of projects (around 5.1 million projects in total), on par with rivals including oDesk and Elance, which have facilitated around $1 billion and $910 million in projects respectively.

Whilst the initial public offering price of the shares was 50c, limited availability of stock played a large role in the strong performance with shares closing for the week at $1.60 – a 220% gain – giving it a market capitalisation of $697 million. The company’s founder, Matt Barrie, was offered just $436 million in a takeover offer in September.

According to Will Vicars, chief investment officer at Caledonia Investments, the strong performance reflects that there is certainly money to be made from prospective companies rather than just buying into the big four banks, Telstra (ASX: TLS) or BHP (ASX: BHP).

Meanwhile, Canaccord Genuity analyst Owen Humphries stated that investors were trading on the potential for Freelancer to dominate the outsourcing industry. The Australian Financial Review quoted him as saying “You’ve got eBay and Amazon, they globalised the product market, these guys are globalising the services industry, connecting small business and entrepreneurs in developed counties with cheap labour in developing countries.”

Freelancer posted a positive earnings for the first time last year and has forecast $18.3 million in revenues for this year, and Canaccord believes it could generate $33.7 million in revenue by 2015, as reported by the AFR. Its shares have gained another 21.6% in value on Monday and are now sitting at $1.945 each.

Foolish takeaway

Considering the recent strength of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), companies are recognising the appeal of initiating IPOs. Freelancer became the latest to list itself on the ASX, following the lead of other companies including iSelect (ASX: ISU), Steadfast Group (ASX: SDF) and Virtus Health (ASX: VRT).

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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