Airtasker Limited (ART) Earnings Call Transcript & Summary

All right. Well, we like our long awkward pauses at Airtasker, so I'm glad that we could get that one out of the way. Thanks, everyone, for joining us today. Really pleased to be showing you a little bit more information about an announcement that we made on Thursday of last week, which is our media partnership that Airtasker has just entered with Channel 4 Ventures in the United Kingdom in the U.K. So as a quick reminder, Airtasker building the world's most trusted marketplace to buy and sell local services. And in really simple terms, we connect people who need work done with people who want to work. One of the things that is really powerful about Airtasker is our mission, which is to empower people to realize the full value of their skills. During this cost of living crisis that people are experiencing on a global scale, whether in Australia, the U.K. or the U.S., there's more and more -- a need to be able to go and earn extra money, and Airtasker is really relevant in this scenario. Creating jobs on Airtasker isn't a byproduct of the works that we do, it's the core purpose of the platform. And I'm really proud to say that so far, Airtasker has put more than $450 million into the pockets of workers on our platform. After all of our fees, after all of the business is said and done, $450 million has got into the pockets of real people in our community to be able to pay their bills, pay their rent and pursue the things they have in their life. So the partnership that we're announcing today is that Airtasker has combined up with Channel 4 and raised AUD 6.5 million, about GBP 3.5 million in media advertising power, which is going to go into Airtasker UK in exchange for a 20% stake in Airtasker UK. So to confirm there, that's Airtasker's local entity in the U.K., not Airtasker Limited. So Airtasker Limited owns 80% of Airtasker UK now and 20% is owned by Channel 4. With this $6.5 million of media advertising power, really going to use that to be able to drive up Airtasker in the U.K. and to make Airtasker a household name like we've done in Australia. Super, super powerful partner to be combining up with -- Channel 4 reaches over 47 million people in the U.K. That's about 78% of the U.K. population every month and has more than 1.2 billion stream going through their various platforms and channels each year. It's absolutely a huge network to be partnering with, and we couldn't be more excited to be choosing Channel 4 as the folks that we're going to use to build up Airtasker into a household name. So looking back a little bit on why we decided to create this media partnership in the United Kingdom. Back in 2016, Airtasker partnered up with Seven West Media in Australia. And you can see there that our orange line on the chart there is when Channel 7 and Airtasker combined back in 2016. During that time, we've built Australia's largest local services marketplace in a population of 26 million. So about 1/3 of the U.K., we've built up more than 112,000 active taskers reached a height of 200,000 posted tasks per month. And as I mentioned before, put over $450 million into the pockets of the Australian workers. And so if we reflect back on the power of that partnership, during that 4.5 years where Airtasker and Seven West Media were in lockstep in a media partnership, we increased our brand awareness from about 10% to well over 60%. That's about 6x, with 12x our gross marketplace volume from circa $10 million to $15 million a year to well over $150 million run rate in gross marketplace volume. And during that same period, we 20x-ed our revenue. The great thing here is that it was a really great partnership for Airtasker. We're really able to use the power of Seven's media assets to grow the business, but also Seven came out with a really good outcome. They made about 5x cash-on-cash returns when they exited from their investment after about 5 years in Airtasker's IPOs. So reflecting on where we are in the U.K., we're about the same spot. And we think that a partnership with Channel 4 is a huge catalyst to being able to drive up and really expand Airtasker into a household name and also a really, really profitable business. So why is TV so effective for us in Australia? The first thing is that when you're building a marketplace, there are two things that you need to really, really focus on. One is building trust in the marketplace. The second is building out scale and doing it quickly and rapidly. So not just about one transaction being profitable, but being able to build that whole network effect and being able to do it really, really fast and at scale. So TV is really, really powerful for us because, one, it creates brand authority and trust. There is still a sense of TV being a trusted medium versus some of these online marketing methods. The second is that broadcast TV, in particular, reaches an enormous audience and very, very fast. So if you are to advertise in the AFL Grand Final or in the Formula 1 in Monaco, you're able to reach the super dense audiences and build up critical mass very, very quickly and fast. The third is that it's relatively cost-effective. We're building a mainstream audience relative to some of the online channels, which are becoming more and more expensive over time. So the Channel 4 partnership is super exciting. You can see on the left-hand side where we are. In the U.K., about GBP 4 million of annualized GMV. And on the right-hand side, you can see when you've overlaid that with what we were able to achieve in Australia together with Seven West Media, there's a huge J curve ahead of us that we can tackle. And so we believe that repeating this playbook that we've created in Australia and taking that to the U.K. is in a really, really exciting opportunity. In terms of the deal structure, I think that this is something that we believe is really, really powerful because it not only aligns Channel 4 to growing in the United Kingdom, which is really where they're going to have the power to help us scale, but it also aligns them to wanting Airtasker Limited's global expansion story to work. So let me talk to a little bit of how the deal actually works. Channel 4 has invested about GBP 3.5 million, about $6.5 million in contra media advertising into Airtasker's U.K. entity. So they're in 20% of Airtasker UK. In 5 years' time, about the same period that Airtasker was in partnership with Seven West Media, Airtasker Limited, the head company, will repurchase Channel 4s' stake in Airtasker UK for either scrip or cash at Airtasker Limited options. So we can choose to either buy back our 20% stake in Airtasker UK for cash or we could issue shares in Airtasker Limited for the same value. And the value that we are going to be using to -- the methodology that we're using to value Airtasker UK is to take Airtasker UK's trailing 12 months revenue. So in FY '28, the amount of revenue that Airtasker UK is generating. And to multiply that by Airtasker Limited, the global head company's revenue multiple. The reason why this is really powerful is it means that Airtasker -- Channel 4 is really incentivized to make that first number go up, Airtasker UK's trailing 12 months revenue. And of course, with the power of their TV advertising, they can do that for us. But the second thing is that they need for Airtasker Limited's revenue multiple to be much higher, too. So as an example, right now, Airtasker Limited's revenue multiple, if you take our market capitalization and divide it by this year's revenue number, that's probably in the range of 1.5 to 2x revenue. That has historically been a much higher numbers than that and [ of course ], Channel 4 is incentivized to help us grow that number as well. So I think really exciting that it aligns Channel 4 to Airtasker's U.K. ambitions, but also Airtasker's global ambitions. In order to do this, we have put in place commercial IP and licensing agreements that very much take the IP that we've built in Airtasker Limited and make sure that, that is available to Airtasker UK on a somewhat commercial arms-length basis. So a really, really exciting deal structure, aligns everyone to everyone wanting the same thing and actually really minimizes the risk of Airtasker diluting some large amount when it acquires bucket shares in Airtasker UK because those two things are so aligned and balanced. So Airtasker's partnership with Channel 4, we really believe can help us on our global mission to empower people to realize the full value of their skills. And we're really excited about rolling out our brand new campaign around our brand, which is all about being a go-getter, and let's do this. Thanks, everyone. I'll now hand it over to Mahendra, who will be leading our Q&A.

Thanks, Tim. We had a few questions submitted prior to the call, but we're happy to take additional questions related to the transaction. So I might read out the questions, and either I'll answer them or I'll pass over to Tim. So -- and I'll exclude anything that we've already answered here in the presentation as well. So one of the questions is how long do we expect to take all this transaction starts to have a material impact on the U.K. operations? And how long has Airtasker been in the U.K.? So I might answer that. So we've been in the U.K. since about 2018. Obviously, the business operations were interrupted during the period of COVID from 2020 through to 2022. And we did go through a phase where we probably had some staff. We downsized early in that period. In terms of traction, the marketplace operates in a particular way both in Australia and in our international markets, so we see stronger volumes during the spring and summer cycles. And so in the Southern Hemisphere, that's obviously coming up later this year. In the Northern Hemisphere, it's just finishing. So we expect our first advertisements to go live probably in fiscal Q2 for FY '24. And that will be ceded through the course of Q2, Q3, and then we expect it to really start gaining traction when we hit the Northern Hemisphere's spring and summer period early next year. The second question we had was how long will it take you create a serious and profitable marketplace in the U.K.? I think based in our current forecast, it's probably going to be 18 to 24 months, and that's partly because the cycle that I just mentioned. We won't really hit the first peak period for the U.K. until March, April '24. There's question here, which I might pass on to Tim. How do you come up with the valuation? At that value, it's a material percentage of the Airtasker group market capitalization.

So the transaction that we did in the U.K. is effectively a private market transaction. So Airtasker Limited, of course, public listed, and it owns a number of subsidiaries, which is Airtasker UK, Airtasker Australia, Airtasker Australia U.S. as well. So when we did the transaction with Channel 4, because it was a private market transaction, we effectively just used revenue multiples and other benchmarks, which exist in the earlier stage start-up phase. And if you do the math here, we effectively achieved a pre-money valuation of around about AUD 26 million. And of course, that does represent with the current valuation of Airtasker Limited -- a really large percentage of Airtasker Limited. What I think that this sort of talks to is that Channel 4 is a very, very sophisticated our venture capital investor. And I think it probably reflects the fact that Airtasker Australia is our revenue multiple is currently very, very low, reflecting potentially a good value in Airtasker Limited stock. So I think it probably does just sort of speak to and communicate a higher valuation for Airtasker Limited and probably a good time to be buying shares.

The next question is, can you talk to the brand awareness metrics in the U.K. currently versus Australia and where you expect that to get to? I think, Tim's best place to answer that one.

It's a great question. So in Australia, Airtasker is built up to an unprompted brand awareness. So that's why if you ask someone who do you use for our services if you need local services? And that number is hovering around about 60% in Australia. It was about 10% when we started with Channel 7, and we ramped it up to 60%, which is where it remained stable. I think there's still a huge way to go in Australia, though. We can definitely do more marketing and create stronger brand awareness in Australia. In the U.K., to put that into comparison, we're at about 20% unprompted brand awareness. And we've got a huge opportunity to build that 20% just off to where we are to 60% in Australia. And I think Channel 4 is going to be a big part of us doing that.

Thanks, Tim. Next question is, will the C4 invest in the sufficient marketing fund -- provide sufficient marketing funding to create a large and profitable marketplace. I think we expect to obviously utilize the contra media advertising over the next probably 18 to 24 months. It's definitely expected that we would put more advertising dollars into the U.K. marketplace following that. We haven't decided exactly how that would work with our partners. So whether that's going to be in the form of cash and purchasing advertising or further contra media investment. Next question. This is quite a long one. Now that there is a plan to be cash flow positive, this partnership also seems to be in the direction of not shelling out cash. What are the plans for the cash sitting in the balance sheet? Any plans for a buyback if the share price is very low? Practically, the entire company is being valued to double the price which the U.K. transaction happens. So yes. So we announced that in -- when we completed the restructure in April that we were aiming to be cash flow positive through the course of FY '24, and that still remains the case. Hence, why we are looking at, I guess, creative structures, such as the one we've just announced to fund our international expansion. In terms of the cash sitting on the balance sheet, at the moment, where the plan is to maintain it as cash reserves, we don't intend to undertake a buyback at the moment. And we will, I guess, make further decisions depending on how our business performs through the current macroeconomic cycle. I think those are all the questions related to the transactions, Tim -- oh there's one more here. What will the current economic and forecast conditions in the U.K heavy on Airtasker? Tim, do you want to take that one?

Yes, sure. I think that we're seeing similar macroeconomic -- directionally, similar macroeconomic conditions that we're seeing in Australia, which is that we're seeing that top-of-funnel foot traffic or demand has come down and has softened. But on the flip side of it, being a 2-sided marketplace creates a very resilient model. We have record -- and I mean really, really high levels of our engagement on the supply side of our market. A lot of people are wanting to come to our platform to be able to earn extra money during this cost of living crisis. And what that has meant is that our funnel conversion rates from that foot traffic is very, very, very high. And so if you look at how it's netted off, roughly, demand is really subdued. Supply is off the charts at record levels, and net-net, revenues are holding strong and are ahead of where we are year-on-year. So we are still seeing year-on-year growth in revenues. In the U.K., of course, we're in an earlier stage in that. So we're seeing a better than just maintaining those revenue levels, and we're seeing them grow. But if you're looking at all things being equal, we prefer to be in a stronger macroeconomic environment. I think when that turns around, we're going to see a really sharp rip back in marketplace activity from a demand perspective as well. So I think in the current environment, we're seeing resilience and robustness. If the marketplace comes back to being a stronger demand cycle, then we're going to see a really, really positive bounce back. And it's the same that we're seeing in [indiscernible]them.

Great. Thanks, Tim. We've got one more question that's just come through. So how does Airtasker UK decide what price to pay back for office and services? I presume this is referring to the IP licensing and the management services agreement. So at the moment, we've gone through an exercise of undertaking a transfer pricing assessment. And we have, obviously, the investment that we've made in the marketplace platform and the Airtasker brand, all of which are owned by Airtasker Limited. And so that's being licensed to the UK subsidiary and will be licensed to our other subsidiaries and there's an arm's length payment for that -- for the use of that IP. And then secondly, we don't, at the moment, have any head count in the U.K., so we run a quite a leading operation in the U.K. It's principally marketing activities. So we basically leverage the head count that we have in our corporate group in Australia, and they provide services to all our subsidiaries. So we again had a mechanism to recharge for certain services that are provided to that entity. I think that's all the questions we have on the transaction today. Over to you, Tim, to close out.

Awesome. Thanks, Mahendra. So yes, really great partnership. I think it's time to put our head down and get to work building out our new campaign and to start scaling this marketing in the U.K. As Mahendra mentioned, we're going to be hitting the airwaves in Q2 of FY '24, and really excited about the impact that we can have. And to repeat the playbook that we created in Australia in the U.K. Thanks, everyone, for joining, and have a great day.