Last week saw the listing on the ASX of Freelancer Ltd

It caused some excitement in the business media because the 50 cents shares shot up to $2.60 when the shares first listed last Friday before settling back to $1.60 at the end of the day. Today the price is floating around $1.80.

Over 8 million shares changed hands that first day. Obviously quite a handsome profit for the stags and some of the insiders. But not for the likes of you and me, dear readers: you have to be inside the casino to make those sorts of cash profits!

My curiosity was aroused. What sort of company creates this scenario? After taking a look, two quite separate things seem worth pondering.

What the business does

Freelancer.com is a virtual market place for jobs. It brings together via the internet people who want work done (buyers), with people who want to do work (sellers). Think of it as eBay for jobs. The work falls into a very large range of of things that can be done remotely on PCs connected to the internet: data entry, programming, writing, data analysis, design, marketing tasks – you get the idea. Work is done, and then delivered via the web.

Like eBay, and other internet based marketplaces, the scope is global, and it’s built around competitive bidding.

Buyers (mostly from high wage countries) come to this marketplace (website) because they want things done cheaply. Most of the sellers are in low wage countries. India, Bangladesh, Eastern Europe for instance. Some of the workers make a full time living this way, many others are part-timers, students and so on. Most commonly, the sellers (of labour) bid for the jobs/projects put up on-line by the buyers (employers).

So what does this mean for getting this knowledge work done?

• Workers are pitted against each other in a free, global and unregulated market to bid for work. You know what that means. The reward goes down.
• Workers in high wage countries (like Australia) face stiff competition from very low paid workers in other countries. This places a cap on wages and work opportunities for some high wage country (Australian) workers.
• Even small businesses can now out-source work this way. This is a variation on the years old practice adopted by large banks, among others, to out-source big slabs of knowledge work to low cost Asia.
• Sure, quality may be hard to control. (This is the major drawback cited by people I have spoken to who have given it a try.) But hey, it’s very cheap. So for simple tasks the quality of the result may not be too much of an issue. Complex projects may be more problematic.

Freelancer Ltd looks like a good company. Great website, good technology, and what looks like a very good management team. Their listing prospectus reads well: good numbers; good growth; good potential benefits from scale; even a bit of a profit. Good luck to them: they are well equipped and free to have a go …

… But as an Australian company, is it producing a net benefit to the Australian economy? Probably not. And certainly not if you regard the real economic benefit to Australia as the sum of the economic benefits flowing to all Australians over the long haul. It just adds to the pressure on work opportunity and wages in an already un-competitive economy.

The ASX listing

Has the capital market lost all sense of company value? If this is a guide it has. It is a perfect example of the casino that veils itself in legitimacy – the crazy stock market.

Freelancer looks like a good company. But …

• it has significant competition: eLance.com; oDesk.com; Guru.com; and dozens of smaller ones
• it claims some unique intellectual property, but it’s clearly not of the kind that protects it against direct and potential future competition
• it has achieved spectacular early growth in revenue (not profit), but much of that has come from buying up smaller competing businesses

Now look at the figures …

• it forecasts revenue of $18 million this year
• it forecasts profit of $471,000 this year
• it has made no forecasts for next year

But as I write, on the ASX it is valued at $774 million, more than 1600 times earnings!

That’s delusional … except if it’s just a bet in the casino that the next sucker will pay more than you paid.