Freelancer Ltd jumps on record cash take: Is it a buy?

Credit: DubSnipe

Casual job website owner Freelancer Ltd (ASX: FLN) surged to a more than three-week high after reporting record cash receipts in the March quarter. Shares in Freelancer jumped 10% in late morning trade to $1.08 when management announced that it had collected $8 million from clients using its service and that it has moved to a positive cash flow position.

Cash receipts in the first three months of this calendar year are 8.2% above the December quarter and an impressive 42% ahead of the same time last year. The marked increase in operating cash flow is particularly important for Freelancer as there are doubts about the strength of its business model, which connects small and medium-size businesses to a pool of freelancers looking for contract work.

We have seen how online job advertising group SEEK Limited (ASX: SEK) has displaced traditional recruitment companies, with the number of ASX-listed recruitment-type businesses shrinking over the past few years.

One question is whether Freelancer could disrupt SEEK and capture a meaningful proportion its job advertising market.

Changes in the job market in the aftermath of the global financial crisis are certainly supportive of contract work as more companies move away from hiring full time employees. The jury is still out on Freelancer’s future but the start-up is taking steps to ensure the stickiness of its service. Stickiness refers to how a website can keep its users.

To that end, Freelancer has improved its service to allow freelancers to showcase their work, and the website has introduced a grading system to highlight the most qualified freelancers on its site.

There’s plenty of space for the stock to run if it can convince investors that it is an industry disruptor given that the stock has shed some of its value since November 2013 and given its modest market cap of $440 million.

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Motley Fool contributor Brendon Lau does not owns shares mentioned in this article . Follow me on Twitter -

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 policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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