The float of Freelancer.com next month is indicative of the world’s evolution from hard copy to hard wired in the digital realm, where it is just as easy to talk to someone on the other side of the world as to somebody in your own house.

Freelancer.com presents a unique business model for an ASX-listed company, in that it has no local peers with which to compare share price performance. The company is an online marketplace where small businesses and consumers post jobs for freelancers. The prospectus says there are more than 600 job categories ranging from website design, to accounting, to manufacturing. Freelancer.com’s main source of revenue comes from fees associated with posting and accepting jobs, as well other subscription services and it depends heavily on its ability to generate website traffic, which it recognises as one of its biggest risks in its prospectus.

The initial public offering at 50c a share, should it be fully subscribed, will give Freelancer.com a market capitalisation of $218 million. However, only 30 million shares will be sold under the general offer and a further 5.1 million under the employee offer out of a possible 436 million shares. The float will raise about $17.55 million through the sale of a 6.9 per cent general stake and a 1.2 per cent employee stake.

Required

A. Describe Freelancer.com’s business model and what it means to ‘float’ on the Australian Securities Exchange.

B. Freelancer.com’s price earnings multiple is described as ‘relatively rare’. Discuss what a price earnings multiple reveals about a company. Compare Freelancer.com’s price earnings ratio with that of Google, Twitter and LinkedIn.

C. Freelancer.com expected revenue to grow by 73% in 2014 relative to 2013 and revenue and after-tax profit to fall. Explain why profit is falling when revenue is growing. Using the most recent years of financial information, prepare a trend analysis of Freelancers.com’s revenue, after-tax profit, and earnings per share.

D. Explain the usefulness of peer analysis when analysing a company.