After Seek’s AGM last week we think the company has put the disappointments of 2016 behind it and is set to deliver on the potential of its multiple business units, regions and investments. The market liked the update and sent the stock higher.
Seek reiterated previous guidance of 8-11 per cent growth in 2017 earnings to $215-$220 million before investments in early stage growth opportunities of $25 million and a $16 million charge for the restructuring of SEEK Learning.
SEEK Learning was the main disappointment of 2016. The unit ceased VET operations due to the regulatory ban on broker activity in vocational education announced in October. Seek will start a new education business in the form of a self-described “trip-advisor” for education courses and phone-based career advisory services. We hadn’t attributed any value to SEEK Learning and our thesis on the stock remains intact.
There is solid momentum in the core domestic and international businesses. Domestic, though maturing, is still in growth mode with revenue and earnings up 15 per cent despite the subdued economy. Seek maintains strong online engagement with 35 million monthly site visits and a one-third share of placements in Australia and New Zealand.
Seek is developing attractive growth options across its sizeable portfolio. The key domestic investment area is the $2 billion recruitment services market. Leveraging high traffic volumes and strong user engagement on its platforms Seek’s Talent Search product, launched in 2015, enables recruiters to search across nine million candidate profiles. This is in competition with LinkedIn. The product has traction with ~6,000 clients using Talent Search and over 540 clients using Premium Talent Search.
SEK is also bolstering engagement via Company Reviews, with 265,000 verified employee reviews collected since the service was launched late last year.
The international segment generates over half of total revenue and earnings and has a long, multi-year growth runway due to its strong positions in early-stage markets, some of which have internet penetration rates near or below Australia in 2000.
Internet penetration in SEK's markets
At this stage the international strategy is to capture share in these markets and attain monopoly positions supported by network effects, much like Seek’s domestic business. In time this could allow margin expansion via pricing power and operating leverage over sales and marketing expense. Margins should follow.
SEK ebitda margins
In particular, Seek’s operations in Asia continue to impress with revenue growth in the high double digits. SEEK Asia generates margins similar to the domestic employment business, reflecting SEEK Asia’s dominant share following the recent integration of JobsStreet and JobsDB, the top two mass market employment marketplaces in South East Asia.
In China Zhaopin is expanding its lead over rival 51Job, as reflected in September quarter results that had Zhaopin growing revenues at 21 per cent versus 17 per cent growth by 51Job. Zhaopin’s margins are currently subdued by aggressive sales and marketing expense and have plenty of room for expansion if the group can successfully consolidate the market.
We like Seek’s business, directors and management and think the stock is worth over $16. We recently bought more shares for our model portfolio around $14. With the stock now around $15, the market is starting to understand the company’s potential.
Originally published in The Australian, Tuesday 29th November 2016