There are numerous players in the outsourcing or "gig" marketplace in Australia, however, I wanted to explore the three largest public companies; AirTasker (ASX:ART), Freelancer (ASX:FLN) and HiPages (ASX:HPG).
Although these businesses have all done wonders for customers, freelancers and investors alike below is an explanation why I would not invest in these three companies now despite the amazing historical growth in this market.
Importantly, I have also set out why one of them (Airtasker) is most likely to be the winner in this market and why it could be considered a good investment once certain milestones start being met.
Gig marketplaces
Before we get into the weeds of these three companies, I wanted to explain what I mean by "gig" marketplaces
Although similar, these three companies operate in a similar space, they differ as follows:
Airtasker: focuses on local tasks (e.g. tasks in Australia, are done by a local business) and it covers a very wide range of jobs. The price is set by the lister/doer and a fee is only charged when the job is won, and payment received
Freelancer: focuses on remote tasks (e.g. programming, copywriting, design) and has recently moved into the contract Freight industry via Freightlancer. It operates on a subscription basis and the more money you pay, the more bids you can make to win a task
HiPages: focuses only on generating leads for licensed contractors in the home maintenance and construction industry. It charges a fee for builders to quote on a job, regardless of whether they are successful
Of course, the risk of people "going direct" and cutting out Freelancer/Airtasker is always present. However, the industry is actively reducing fees for repeat users to increase retention. I would consider this to be a low risk for a Freelancer (because it's remote) and a moderate risk for HiPages/Airtasker
Airtasker (ART) - If local businesses in US/UK adopt it; it will be a home run
ART does not directly compete with Upwork/Fiverr because it uses local people in the area. Naturally, this is an inferior solution if you are in the US and want cheaper online support overseas, however, it is an advantage for the local SME model
ART has successfully acquired Zaarly and is deploying funds to pursue the larger US market
ART's transaction value and take rate (i.e. ART's their cut) has remained quite strong due to their strategy to drive the following:
Pre-package goods for customers (e.g. removalists and picture hanging for $100)
Move to more professional tasks (e.g. legal/accounting)
Better locational filters; an important part of their model
Milestones ART need to hit before being deemed are safer investment
Currently aggressively priced at 16x revenue; there is little room for error in ART's US expansion. Although they have been very conservative in their approach (Zaarly was a small investment); the stock is likely to be punished if it does not get immediate results
ART needs to obtain meaningful marketing partnerships in the UK/US (like they did with Seven West Media in Australia)
ART need to show greater international adoption before we're excited; as you can see below setting up a marketplace in any country is a slow burn and given the size of the US competitors; they need to get some traction in those markets to be a worthwhile investment
Freelancer - Revenue is spread wide, not deeply
Unlike ART, Freelancer only trades on a 7x Revenue multiple and has seen revenue growth plateau in recent years
The main reasons revenue has plateaued is:
Freelancer directly competes with Fiverr/Upwork in the remote market. Whilst the market size is larger, their competitors are much larger (c.$6b Market capitalisation each)
Some saw their membership platform as less popular than a fee for service since higher-paying members will spam to win a task
Their mobile platform has been seen as inferior to competitors
They have spread their operations very wide (c.200 countries) without dominating a particular country
Now a more mature business they are not experiencing crazy growth in their traditional business model (shown below)
Interestingly, Freelancer has a payments service business (Escrow) which they have been operating since 2015 and while this is experiencing tremendous growth it is still a very small part of their business
Overall - Fiverr/Upwork have likely beaten them to the US market and whilst their newer product lines will continue to grow it has unnecessary risk attached to it.
Hipages - Smaller TAM, with a large price tag
Similar to ART with Seven, HiPages got early backing from Newscorp and has grown rapidly from a $160m business in 2016 to a $480m business
Whilst HiPages has the advantage of being one of the first movers in the local construction market; it has not made any significant inroads into overseas expansion.
Although ART is only a few years ahead on this; it really impacts the size of their possible market
HiPages are pursuing an assessable market of c.$80bn (Australian home improvement),
AirTasker is pursuing the US, UK and Australian outsource market (c.$600bn).
Of course, if AirTasker cannot get any traction in those markets; it does not matter the size of them... however at least they are aiming at cracking a big market
In terms of financials for HiPages, they are producing growing EBITDA and high retention rates which is very promising
However, it is much more likely that HiPages growth rate will begin to taper out and at that point, its valuation (c.8x revenue) whilst lower than Airtaskers will still look very high
So, in conclusion - my sense is that none of the three companies (AirTasker, Freelancer or HiPages) is compellingly cheap, however, AirTasker is at least the company with the lowest level of direct competition in the larger US and UK markets. So if they can demonstrate traction in those markets it is the best bet of the three...
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