Checking in on Airtasker's H1 FY22 Results
Given COVID-19 lockdowns, this was a solid six months for Airtasker. Mr Market seems to agree with shares up more than 20% in the two days following the results announcement on the 31st Jan 2022.
The first article I published on this Substack channel in Oct 2021 was a deep dive on the Australian local services marketplace, Airtasker (ASX:ART). You can read that article here. Below I’ve summarised the main aspects of my bullish thesis on Airtasker:
Airtasker operates in the large/fragmented local services industry which lacks a dominant market leader;
Has a scalable two-sided marketplace model with (1) increasing network effects from scale (e.g., greater brand awareness and faster tasker response times) and (2) excellent gross margins above 90%;
Has lots of scope to expand into international markets (e.g., UK and USA) to expand their total addressable market and become a global marketplace;
Is founder-led (Tim Fung) with insiders owning more than 50% of outstanding shares; and
Trades on a reasonable valuation multiple of 9x forward sales and 10x forward gross profit.
In that article, I also highlighted a number of risks to Airtasker’s business, including:
Airtasker is unable to reduce off-platform leakage, which is where customers find a tasker through the Airtasker marketplace and then, once contact details are exchanged, both parties organise future transactions outside the Airtasker marketplace, avoiding booking and service fees; and
Additional COVID-19 variants result in continued lockdowns.
Airtasker is making significant operational progress to reduce off-platform leakage but has unfortunately been severely impacted by COVID lockdowns during the first six months of FY22. In this short article, I discuss Airtasker’s Q1 and Q2 results for FY22 as well as a number of operational improvements outlined in their ‘Operational Update’ released to the market on the 31st Jan 2022.
1) Solid growth in GMV despite COVID-19 lockdowns
Throughout the first half of FY22, Airtasker battled challenging macroeconomic conditions related to COVID-19 lockdowns from the Omicron variant. Sydney was in lockdown from July-October 2021 and Melbourne recently broke the world record for the longest time spent in COVID-19 lockdown (source). Moreover, a large swath of the population in Sydney and Melbourne were forced to self-isolate in Dec 2021 and/or Jan 2022, either due to having contracted COVID-19 themselves or from being a close contact of someone else with COVID-19. Given that Sydney and Melbourne are Airtasker’s two largest markets, this represents less-than-ideal economic conditions.
Despite these obvious headwinds, Airtasker reported $83.6m of gross merchandise volume (GMV; the total amount of dollars flowing through the marketplace) through the first six months of FY22. On a quarterly basis, Airtasker reported:
Q1 FY22: $35.0m in GMV (+6% YoY growth).
Q2 FY22: $48.6m in GMV (+39% QoQ growth; +23% YoY growth).
While these results are impressive on an absolute basis given the broader macroeconomic conditions, I would be remiss for not mentioning that GMV of $83.6m through H1 FY22 was 12% below Airtasker’s previous guidance of $95.0m, made in Aug 2021 when their FY21 results were announced.
However, Airtasker upgraded their H2 FY22 GMV guidance from $105m to a range of $107-110m based on strong demand after the cessation of COVID-19 lockdowns in Sydney and Melbourne. The below figure indicates this ‘snap back’ in demand seen during the final two months of 2021. Thus, Airtasker is now forecasting FY22 GMV of $191-194m, which is a 3-5% downgrade from their initial forecast of $200m made at the end of FY21. While I never like when companies downgrade top-line guidance (e.g., GMV or revenue), it is understandable for Airtasker given these difficult macroeconomic conditions. A 3-5% downgrade in such challenging circumstances matters very little to long-term investors basing investment decisions on Airtasker’s expected GMV in 2025 or 2030.
2) A slight drop in take rate … to build trust with taskers
Airtasker reported $14.0m revenue in H1 FY22, consisting of $5.9m in Q1 FY22 and $8.1m in Q2 FY22 (+38% QoQ growth; +17% YoY growth). Dividing revenue by GMV implies a take rate in H1 FY22 of 16.7% (subject to rounding errors as exact numbers have not been disclosed), which is 70bp below their FY21 take rate of 17.4%.
While investors like to see expanding take rates, it is important to note that Airtasker’s implied take rate of 16.7% is still above larger US peers operating remote services marketplaces, such as Upwork (14.8% as of Q3 2021; NASDAQ:UPWK).
The main reason for Airtasker’s drop in take rate in H1 FY22 was that management chose to freeze their tiered fee structure which rewards taskers who earn more through the platform with lower service fees. What this means is that taskers who were forced to work reduced hours due to COVID-19 lockdowns kept their pre-lockdown tier rating (and the corresponding lower service fee), even if their last 30 days of income did not justify inclusion in that tier. This hurts Airtasker’s take rate and revenue in the short-term, but helps to keep taskers engaged and committed to Airtasker in the long-term. This should manifest in increased tasker satisfaction, reduced willingness to engage in off-market transactions, and lower churn in taskers. Let’s hope so.
3) Accelerating increases in average task value
In Oct 2021, I predicted that Airtasker’s average task value would continue to increase over time as (1) customers became more trusting of the Airtasker platform and (2) the US business - aided by the acquisition of Zaarly - became a larger contributor to Airtasker’s revenue base. For those unware of this acquisition, Zaarly was a local services marketplace based in the US with an average task value of around $700 that Airtasker acquired in May 2021 for $3.4m (or $5.70 per registered user!).
Consistent with this prediction, Airtasker reported an average task value of $255 in Q2 FY22, which was up an impressive 24% YoY and 29% from their FY21 average task value of $198. Along with increasing the average annual frequency of transactions per customer, increasing average task value is one of Airtasker’s main drivers of revenue and GMV growth.
4) Continued traction in international markets
One of the things that most excited me about Airtasker in Oct 2021 was their international expansion plans into the UK and USA. While I still believe that Airtasker could generate market-beating returns focusing solely on the Australian market (Airtasker’s current GMV represents < 0.5% of the Australian market), expansion into international markets represents a lucrative area for future growth and helps to diversify their revenue base outside of Australia.
UK
In Q1 FY22, Airtasker reported > 100% YoY growth in UK GMV, which accelerated in Q2 FY22 to 121% YoY growth (the QoQ decline was due to seasonal factors). In Q2 FY22, Airtasker hired a dedicated UK country manager to oversee their UK operations, which was long overdue. I expect Airtasker to continue to post YoY growth rates in UK GMV in the high double digits to low triple digits for the next 3-4 quarters, given the large total addressable market and because the marketplace has < 5m in GMV on an annualised basis (i.e., a small base).
USA
As Airtasker USA is less than 12 months old, Airtasker reports the number of posted tasks as their main KPI, rather than GMV. From Q1 FY22 to Q2 FY22, Airtasker experienced 71% QoQ growth in the number of posted tasks in the USA. As can be seen in the below figure, Airtasker saw rapid growth throughout Q2 FY22 in their four core cities: Atlanta, Dallas, Kansas City, and Miami, albeit off low bases (< 50 tasks posted per month in Q1 FY22).
Airtasker is also seeing notable traction outside of their four core US cities, represented via the blue bar in the below figure. However, Tim Fung re-iterated on the Q2 conference call that Airtasker’s focus for US expansion remains on these four core cities. I expect to see > 50% QoQ growth in the number of posted tasks in the US for the next 3-4 quarters as Airtasker builds out their US presence. I am also expecting more insight from management in future conference calls about the reasons for focusing on these four cities and not other notable US cities, such as New York, Chicago, or Los Angeles.
5) A large increase in marketing spend in H2 FY22 bodes well for GMV growth
Airtasker has allocated 75% of their FY22 marketing budget to be spent in H2 FY22, which should result in continued acceleration in GMV from the final two months of 2021. Airtasker hired Noelle Kim — who was the former Head of Marketing for the Asia-Pacific division of Instagram — as their Chief Marketing Officer in July 2021 and it seems that Airtasker has since been building the foundations for a large uptick in marketing spend. With Noelle Kim supported with a doubling in the number of global marketing staff from 10 to 20, Airtasker seems well positioned to launch a number of larger marketing campaigns to increase brand awareness and drive paid traffic to their marketplace.
Airtasker’s unit economics appear to support increased marketing spend. Airtasker reported in their IPO prospectus that 99% of new customers in FY20 were acquired through non-paid marketing channels, such as word-of-mouth. Throughout FY21, Airtasker reported that each active customer had 1.9x transactions on the platform at an average task value of $198. If we assume that average annual order frequency is unchanged in H1 FY22 at 1.9x but use the updated average task value of $255, we can estimate that an active customer will spend around $485 on Airtasker in FY22 (GMV per customer). With a current take rate of around 16.7%, this equates to average annual revenue per customer of around $81. With a customer acquisition cost (CAC) from H1 FY20 to H1 FY21 (unfortunately I cannot find more recent data) of < $5, this represents excellent unit economics and suggests that Airtasker should be increasing marketing spend to attract new customers.
6) Continued traction in their listings product
In March 2021, Airtasker launched a new listings product which enables taskers to post a pre-packaged service at a pre-determined price for customers to purchase ‘off the shelf’. This contrasts with Airtasker’s main product where customers post a task that needs completing, and taskers compete through price offers within that customer’s budget. This listings product works well for ‘cookie-cutter’ services that do not require significant personalisation and represents a simpler purchase experience for both customer and tasker.
As can be seen in the below figure, Airtasker has reported consistent organic growth in the number of listings purchased each week since launch in March 2021.
7) Product innovations demonstrate that Airtasker is aware of, and working to reduce, off-platform leakage
One of the main criticisms that investors have about Airtasker is the high levels of off-platform leakage that come once the relationship between a customer/tasker is established and contact details are exchanged, allowing future communication outside of Airtasker’s platform. To date, this has represented a major area of potential improvement for Airtasker.
I am relieved that Tim Fung and management appear to be taking this issue very seriously and are actively working to resolve this problem. From Feb 2022 onwards, Airtasker will be rolling out a new ‘contacts’ feature where customers will be able to message taskers they have previously worked with through the Airtasker app and organise future services at a reduced rate. While Airtasker has not finalised the specific fee structure, they will be experimenting with a number of different booking fees (paid by the customer) and service fees (paid by the tasker) to see which combination is most effective. I like this data-driven and iterative approach.
The general principle behind this ‘contacts’ feature is that the fee to book a tasker that someone has previously worked with will be much lower (and decrease over time with successive transactions) than booking a new tasker for the first time. Like I mentioned in my last article, one of the main benefits of acquiring Zaarly was that Airtasker would be able to leverage their back-end infrastructure to facilitate repeat transactions. More than 75% of Zaarly’s GMV came from repeat transactions between a customer and a given tasker, and Zaarly management spent a lot of time building out this platform infrastructure to incentivise such transactions. Throughout 2022, Airtasker will integrate Zaarly’s software into their booking processes which should help to incentivise customers and taskers to conduct repeat transactions on the platform, reducing off-market leakage, and increasing both top-line metrics and margins. Time will tell whether Airtasker can successfully resolve this problem.
8) A strong cash position but watch those cash outflows
At the end of FY21, Airtasker had a balance sheet consisting of $45.9m cash and no debt. This has reduced throughout H1 FY22 to $34.0m cash and no debt as Airtasker reported large cash outflows in both Q1 FY22 and Q2 FY22. What is concerning is that these large cash outflows occurred prior to the planned increase in marketing spend in H2 FY22. While Airtasker’s current balance sheet is still attractive on an absolute basis and affords them the flexibility to continue to invest in R&D and marketing, I will be closely monitoring cash outflows over the coming quarters to see if a capital raise is needed.
Airtasker reported positive operating cash flow in FY21, demonstrating the capital-light nature of their two-sided marketplace and their ability to control costs when needed. Thus, I am confident that Airtasker will become cash flow positive in the medium- to long-term, even if current cash burn is a concern.
9) A quick update on valuation
When I published my deep dive in Oct 2021, Airtasker was trading at a forward EV/sales multiple of around 9x, which I felt was reasonable given their 90%+ gross margins and expected revenue growth rates through to 2025. Since then, Airtasker has dropped around 20% (along with basically every other technology stock in the world) and the multiple has compressed to a much more attractive level of 7.3x forward EV/sales (as of 2nd Feb 2022). This equates to a forward EV/gross profit multiple of around 8x, assuming gross margins are roughly unchanged from FY21.
Conclusion
Given that Sydney and Melbourne spent most of late 2021 in lockdown, I am happy with Airtasker’s financial performance in H1 FY22. Mr Market seems to agree with shares up more than 20% in the two days following the results announcement on 31st Jan 2021. I am eagerly awaiting Airtasker’s complete H1 FY22 results which are due to be announced at the end of this month. While we know the main top-line metrics, it will be interesting to delve deeper into other important KPIs, such as gross margins, customer acquisition cost, and average order frequency.
Overall, I remain just as bullish on Airtasker and their long-term prospects as I was when I published my deep dive in Oct 21. Lockdowns have obscured Airtasker’s true growth rates and made it difficult to judge some QoQ and YoY comps, but management seem to be making the right investments to improve their product experience, reduce off-market leakage, gain brand awareness, and expand into international markets. My thesis remains intact and I plan to purchase additional shares over the coming months to build out a full position.
Best,
Jordan
Hi Jordan, I'm a new subscriber but I already value your deep dives so much. I'm also new to investing, and I wanted to ask about how I should think about investing in startups, like Airtasker, who are yet to breakeven. I very much want to invest for the long term in companies that are growing, but how can I be sure they will move towards cash flow positive territory. The initial prospectus for Airtasker says that they might not even reach breakeven point and may rely on continuing funding raising; and I was a bit taken aback by that.
Thank you,
Clinton