WEEKLY COMPANY INSIGHT: SEEK
Roy Davidson, 4 July 2019
Seek (SEK) is a leader in the online employment market in Australia and New Zealand. It sells online classified job advertising space and is the ‘go-to’ website for job seekers. SEK also has operations in Mexico, Brazil, China and other South East Asian countries.
More to SEK than its market leading Australasian operations
SEK is the clear market leader in Australia and New Zealand, but its growth opportunities span outside this home market. While most of SEK’s earnings are derived from the Australasian based business that connects Australian and New Zealand job seekers with employers, SEK also has a strong international presence. The company has operations in Mexico, Brazil, Asia and China. SEK has controlling interest in businesses with strong market positions, exposure to over 2.2 billion people and approximately 20% of global GDP.
Market maturing, but pushing for more premium revenue
The advantages of online employment advertising over traditional means (e.g. newspapers) are well known. However, this market is maturing with online now accounting for the vast majority of job listings. In response, SEK is attempting to drive additional revenues by offering more premium services to advertisers, so-called depth revenue. Beyond this, SEK continues to invest in the next phases of its growth in talent sourcing and human capital more broadly.
Investment in the business dampens near-term growth
SEK has recently reported a number of subdued results. While the core Australia/New Zealand jobs business has been performing well, other areas of the Australian business has been hit by regulatory changes, the International businesses have faced tougher economic backdrops, and the company has been investing heavily into early stage ventures which are loss making and have dampened near-term earnings growth. These trends appear set to persist while domestic economic conditions have become more challenging.
SEK has positive long-term drivers but fairly valued
SEK is one of the top technology exposures in Australia and New Zealand. It has strong positions in its markets, good cash generation and growth opportunities both overseas (e.g. in Asia with Zhaopin) or in adjacent markets (human resources). While SEK benefits from a strong economy which is creating jobs, it has demonstrated its ability to perform during weak economic times which is encouraging. However, SEK’s rich multiple coupled with several headwinds weighing on earnings growth restrict us from taking a more positive view near-term.
- economic downturn
- increased competition