Why Freelancer Ltd shares are soaring today

Freelancer Ltd (ASX:FLN) shares are soaring today.

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Shares in Freelancer Ltd (ASX: FLN) lifted more than 6 per cent to $1.76 today after the online marketplace for job seekers and recruiters posted another quarter of positive operating cashflow of around $360,000.

Total cash receipts for the quarter were $11.9 million, up 62% over the prior corresponding period, with cash in hand of $32.2 million as at quarter end.

Freelancer operates on a calendar year basis and expects to report full year results on February 23, with expectations for positive operating cashflow over the full year.

More important is the prospect of another strong year of growth in 2016 due to the business sitting slap bang in the middle of the growing digital economy.

The business also completed the acquisition of Escrow.com in the quarter, which is essentially a provider of online escrow account services in collecting, holding, and disbursing buyer and seller funds according to their instructions.

The Escrow.com acquisition is significant in giving Freelancer more vertical integration and as a source of future growth via its ability to skim fees on the huge payment volumes transacting across the Freelancer business.

The Freelancer website is reportedly the world's largest digital marketplace for freelance work, with around 18 million registered users to date that have posted more than 8 million jobs. The jobs posted commonly require digital tasks like website development, design, SEO marketing and mobile application development.

Evidently this is a business with powerful digital tailwinds that is seeking to build the same kind of competitive advantages possessed by larger online operators like SEEK Limited (ASX: SEK) and REA Group Limited (ASX: REA).

These kinds of websites enjoy powerful network effects as their market-leading popularity attracts the most buyers and sellers to provide the website operator with pricing power, a moat, and substantial advantages over smaller competitors.

Freelancer does have a large US-based rival called Elance.com that has existed since 1999, although the global marketplace for online freelance jobs is huge and easily large enough to support several large competitors as this space continues to grow.

Freelancer looks a fast-growing digital business with a lot of potential, but it's no secret and the valuation around $820 million is large compared to the operating earnings of just $360,000 posted in the most recent quarter.

Investors then need to be aware that the company is priced to deliver strong growth long into the future and any hiccups could result in the fast-rising share price quickly reversing course.

Motley Fool contributor Tom Richardson owns shares of REA Group Limited. You can find Tom on Twitter @tommyr345 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.

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