Breaking Down Airtasker's FY22 Results
It’s been a volatile past 12 months but the long-term growth picture for Airtasker remains intact, despite the 60%+ fall in share price.
Earlier this morning, Airtasker announced their Q4 FY22 results which seemed to impress investors, with shares up more than 20% at the time of publication. As I haven’t written an article on Airtasker since their H1 FY22 results were released (see link below), I thought it would be worthwhile to delve into their operational performance for the back half of 2022 and whether I remain a shareholder in the business.
1) Solid top-line growth but short of management guidance
In Q4 FY22, Airtasker reported GMV of $54.4m (+6% QoQ; +38% YoY) and revenue of $9.0m (+5% QoQ; +31% YoY). For FY22, Airtasker reported the following top-line results:
GMV: $189.6m (+24% YoY growth).
Revenue: $31.5m (+18% YoY growth).
Overall, I’m mixed about these results. Without a doubt, Airtasker battled some tough circumstances throughout FY22, including:
COVID-19 lockdowns throughout Q1 and Q2 (estimated $10-12m impact on GMV).
Unprecedented rain leading to widespread flooding throughout some major cities (e.g., Sydney) in Q4.
Record low unemployment which meant less taskers were available for freelance work on Airtasker’s platform.
However, top-line numbers fell short of management’s initial and revised guidance, which is frustrating. In August 2021, management guided towards the following FY22 results:
GMV > $200m (+30% YoY growth).
Revenue > $35m (+32% YoY growth).
In response to COVID-19 lockdowns affecting Q1 and Q2 results, management downgraded FY22 GMV guidance in January 2022 from > $200m to $191-194m. Thus, Airtasker’s final FY22 GMV result of $189.6m came in below even their downgraded guidance. What makes this miss even worse is that FY22 GMV included Oneflare GMV contributions from 25th May 2022 onwards (around 35 days total). If Airtasker had not acquired Oneflare, the miss on FY22 GMV would’ve been even larger.
I’m struggling to discern whether missing guidance was the result of: (a) an inexperienced management team who were just not conservative enough with their guidance and future planning or (b) is indicative of a broader macroeconomic slowdown which will impact Airtasker’s growth in the coming 6-18 months. Time will tell.
2) Continued strong (but decelerating) growth in UK and US markets
One of the main aspects of my thesis for first purchasing shares in Airtasker was their significant opportunities for international expansion within both the UK and US markets. Unlike marketplaces focusing on remote services (e.g., Upwork or Fiverr) or physical products (e.g., Amazon or Etsy), there is no dominant global business in the local services market in which Airtasker operates. As such, there is tremendous greenfield expansion available for Airtasker within overseas markets.
In Q4 FY22, Airtasker posted 104% YoY growth in UK GMV, which represented a slight deceleration from the 121-138% growth rates reported in the prior two quarters. This remains a strong headline number, but I would be concerned to see continued deceleration over the coming quarters, given that Airtasker’s UK business still operates on such a small scale relative to their AUS business.
Airtasker reported similar trends in the US market. Growth in US posted tasks was 49% QoQ, which is a phenomenal headline number but a substantial slowdown from the 71-90% QoQ growth reported in the prior two quarters.
Overall, international GMV ARR reached a high of $9.5m in May 2022, which was at the higher end of their guidance provided in August 2021 for international GMV ARR of $8-10m.
3) Continued expansion in average task price
Airtasker reported an average task price in FY22 of $237, which was up 20% from the $197 reported in FY21. This is a good sign for investors as increases in average task price, along with increasing the total number of transactions occurring on the platform, are the twin engines of Airtasker’s GMV growth.
Increasing average task price is a function of several factors, including:
Increased customer trust with using Airtasker’s platform.
Taskers offering more expensive and high-touch services to customers.
Greater contribution from the acquisition of Zaarly (now Airtasker US), which had an average task price of around $700 at the time of acquisition in May 2021.
Greater contribution from the acquisition of Oneflare, which had an average task price of around $2,300 at the time of acquisition in May 2022.
4) Strong organic customer acquisition
Airtasker provided some interesting metrics in this latest update about the number of customers in FY22 who were: (a) returning customers, (b) new organic (i.e., non-paid acquisition) customers, and (c) new customers acquired via paid marketing.
In FY22, 63% of customers were returning customers and 80% of new customers came from non-paid acquisition channels (e.g., word of mouth), demonstrating Airtasker’s strong brand recognition and organic customer reach. High rates of organic customer acquisition results in a lower average customer acquisition cost (CAC) and better unit economics, assuming that the lifetime value between a paid and organic customer is comparable.
5) Reduced take rate is nothing to be concerned about
In my opinion, some people become myopically focused when evaluating marketplace businesses on the direction of take rate (revenue divided by GMV) without considering whether the take rate was high or low to begin with.
In FY21, Airtasker reported a generous take-rate of 17.4%, which many customers and taskers felt (according to online forums and review websites) was too high. As such, many taskers chose to use Airtasker as a lead generation mechanism to acquire customer contact details through an initial transaction, but then complete repeat transactions off-platform through ‘cash in hand’ methods.
As Airtasker has become more sophisticated with their fee structure and dropped both the customer and tasker fees for repeat transactions, take rate reduced in FY22 to 16.6%. Another contributor to the reduced take rate was the incentives offered to retain taskers during the COVID-19 lockdowns, which ensured there was an appropriate supply of taskers available to meet demand when lockdowns ended.
Overall, I’m not concerned about the YoY drop in take rate. In fact, I believe that as Airtasker continues to push more repeat transactions through their platform and reduces off-platform leakage, take rate will continue to decrease over time, which is a good thing for investors, taskers, and customers alike.
6) Taking steps to become cash flow positive
At the end of FY22, Airtasker had $28.2m of cash and cash equivalents (excludes equity receivables) on their balance sheet with no debt. Airtasker’s cash balance reduced $17.7m from $45.9m at the end of FY21, which is notable cash burn. Indeed, Airtasker reported the following operating cash outflows throughout FY22:
Q1 FY22: ($4.1m).
Q2 FY22: ($4.7m).
Q3 FY22: $1.0m.
Q4 FY22: ($3.6m).
While Airtasker’s operating cash burn is improving, it’s still a concern. Airtasker attributed their increased Q4 operating cash burn to: (a) a one-off annual insurance premium expense and (b) seasonality related to variable marketing spend in the US and UK markets.
Pleasingly, Airtasker have begun to implement cost cutting measures (e.g., reducing headcount in non-revenue-related functions, other operational efficiencies, etc) to reduce their fixed cost base and reach sustained positive cashflow in the next 12 months. This is a pleasing sign.
“A program of cost management initiatives has been activated to reduce our fixed cost base to ensure a clear path to sustained positive cashflow” (Tim Fung, CEO).
It’s worth keeping in mind that Airtasker’s AUS business has been generating cash for some time; it’s their international expansion plans into the UK and US markets which have pushed their cash burn into the red.
7) How will Airtasker fare in a recession?
Management included an interesting slide in their presentation with a rather positive spin on how Airtasker’s business would perform in a recession. While it’s easy to dismiss these predictions at first glance as ‘wishful thinking’ (I certainly did), upon reflection I think there is some truth to their assertions, particularly on the supply side.
If global economies do enter a major economic slowdown (which generally coincides with increasing unemployment) or high inflation persists for longer than expected, it should drive more people to consider entering the ‘gig economy’ to either replace their lost income or supplement their existing income which is being eroded by inflation. The net effect of this trend would be an increased supply of taskers on Airtasker’s marketplace.
The demand side of the equation is less clear. Less income in the pockets of consumers would likely result in people delaying non-essential services and repairs, but would be balanced by the imperative to spend now to avoid future higher prices (i.e., the inflation spiral). Nonetheless, there are some essential tasks which cannot be delayed, regardless of economic conditions. Airtasker estimates that 70% of jobs completed through their platform fall into this ‘essential’ bucket, although I suspect there is some window dressing going on there.
8) Conclusion & Valuation
To me, this was a meh quarter for Airtasker. Top-line growth was solid given the broader macroeconomic and environmental circumstances, but fell short of their latest revised guidance, despite inclusion of some inorganic contributions from Oneflare. International growth remains strong, but appears to be decelerating. Increasing task value and decreasing take rate represent continuation of trends which have been in place for the past few quarters.
Overall, I remain a shareholder of Airtasker and have not sold a single share since first purchasing shares back in August 2021.
It’s been a volatile past 12 months but the long-term growth picture for Airtasker remains intact, despite the 60%+ fall in share price. Over the next few quarters, I’ll be closely monitoring the following:
Management’s forecasts for FY23 top-line growth. I would be disappointed to see guidance for organic revenue growth of < 20%.
Can Airtasker reduce their cash burn? Airtasker generated positive operating cash flow in FY21 prior to their IPO and their 93% gross margins indicate a capital-light business model. I would be impressed to see 20%+ revenue growth while also becoming break-even on an operating cash flow basis, reducing the need for future dilutive capital raises.
Will international GMV growth continue to decelerate?
Can Airtasker drive more repeat transactions through their platform and reduce off-platform leakage?
Will Airtasker continue to ‘buy growth’ through acquisitions? While the Oneflare acquisition makes sense and the valuation multiple appears attractive (1.6x FY23F revenue), I would be concerned to see further large acquisitions which require: (a) further shareholder dilution through capital raises or (b) a substantial decrease in Airtasker’s cash balance.
You’ll notice throughout this article that I’ve made little mention of Airtasker’s share price. This is deliberate. I’m a long-term investor in businesses, not a short-term speculator in share prices.
The decision of whether to buy or sell shares in a business comes down primarily to an assessment of business quality and fundamentals (e.g., revenue growth, margins, unit economics, path to profitability, customer reviews, etc), rather than short-term movements in share price.
With the drop in share price, Airtasker now has a trailing EV/LTM revenue multiple of 3.3x (according to Koyfin) with 93% gross margins. This seems an attractive price for a capital-light business with a strong product offering, high brand recognitions, and significant opportunities for international expansion in large markets.
