Founder and chief executive of global online job marketplace Freelancer Matt Barrie, has warned investors against buying in to a fintech and cryptocurrency “bubble”, as he revealed long-term plans for a spin-off IPO of its fast-growing Escrow.com payments business.
Speaking to The Australian Financial Review in the wake of Freelancer’s shares diving 14 per cent in one day after revelations of a rare revenue slow-down, Mr Barrie provided a robust defence of the company’s long-term prospects, including his high expectations for Escrow, the payments business it acquired in 2015.
But he warned a bubble had emerged and despite teaching cryptography he doesn’t invest in cryptocurrencies.
“There is definitely a bubble in fintech and there is definitely a bubble in blockchain and there is definitely a bubble in crypto,” Mr Barrie said.
“I taught cryptography at university for 14 years and I don’t invest in any of the cryptocurrencies, I think it is a complete fad. Ultimately I think the Federal Reserve in the US will release its own Fed coin and will regulate or ban everything else … then the Reserve Bank will do similar in Australia and every country in the world will launch their own digital currency and ban all other coins so that the central banks keep control of the money supply.”
Since going public successfully in late 2013, Freelancer, the “eBay for jobs”, has been the Australian tech company most comparable to well-known US tech platform players and has consistently delivered rapid revenue growth. Investors were therefore taken aback when Freelancer reported a 7 per cent fall in revenue to $24.7 million in the first half a fortnight ago.
Mr Barrie said the fall was caused by a confluence of two missteps, which have since been reversed. First was a move to allow users to post jobs on the site with one click and little detail (extra details were added after workers started bidding and asking relevant questions) and the second was to promote top-tier membership plans with free trial periods at the same time.
While both moves were logical ideas, in reality they led to too many low-quality job listings being posted at the same time as freelancers were bidding for multiple jobs at once, due to their generous free trial package allowances.
“Overall it became an issue for the quality of the marketplace and it took a while to figure out because individually these things tested well, but the interaction of the two was negative and showed up in the numbers,” Mr Barrie said.
“Once we worked out the problem and reverted both, the health of the marketplace returned, so it was certainly a learning experience in how we do product management.”
Despite the revenue decline, the other metrics used by investors to track Freelancer’s progress remained strong, with Escrow.com doing particularly well. The service works by securely holding money paid on an online transaction until both parties are satisfied. It is commonly used to sell internet domain names, but is also aimed at other large purchases such as cars, boats and antiques.
Last week it released a new product called Escrow Pay, which means it can be easily added into transactional websites, apps or online marketplaces.
Freelancer as a whole saw its gross payment volume (GPV) – or the amount paid for jobs conducted on its platforms – increase 25 per cent year on year to $364 million. Escrow had a record second quarter of $158 million.
This was caused by an increase in large transaction volume – such as $US9.6 million for a single highly sought after domain name purchase.
Canaccord analyst Owen Humphries picked out Escrow.com as the standout in Freelancer’s performance.
“We believe this remains a sleeper in Freelancer’s portfolio and appears to be scaling faster than our previous expectations,” he said in a note to clients.
“Further growth could also be enhanced by expanding the number of currencies on the platform, which is currently limited to US dollars and Euros … We see strong upside to the share price if Freelancer can return the marketplace to trend growth coupled with scaling its Escrow.com payments platform.”
Escrow has been running for 20 years and has processed more than $US3.5 billion in transaction volume. Asked whether he believed it would remain a Freelancer subsidiary long term, Mr Barrie said an IPO would be on the cards when the time is right.
“This is like the biggest fintech company you have never heard of, it hasn’t had a lot of press but it is an incredible business,” he said.
“I will IPO it at some point, as it could easily be the next PayPal or Stripe. When we bought it, it needed a lot of work to bring it to a modern technology company state … now it has been integrated into some big marketplaces, such as one where people buy planes and the numbers show that it is flying.
“It is an incredible business and it is going to be a really big business as well, so I’m very excited about it.”
Mr Barrie said he would not rush to spin it off, as he is wary of an over-hyped environment for tech listings, particularly in the financial services sector.
At the recent Australian Financial Review Innovation Summit, the Australian Securities Exchange’s listings boss, Max Cunningham, said it was actively dissuading scores of immature tech companies from listing, as it seeks to maintain standards and avoid reputational damage after the dramatic falls of Big Un and GetSwift.
Mr Barrie said companies needed to be careful about not listing too early on the ASX, despite the exchange having a track record of enabling very early IPOs, particularly for prospective mining stocks.
He said investors should remember that more than 90 per cent of early-stage tech businesses failed, and avoid backing companies that needed to list in order to survive.
“If you aren’t certain of your next eight quarters of revenue then you really shouldn’t list, because if you muck it up then the market won’t let you raise much more money if you are cashflow-negative,” he said.
“I would only really consider listing if you know you can get to profitability very quickly or you are already profitable.”