The company recently announced that financial results in H2 FY15 have been affected by issues in SEEK Learning. The company attributed the SEEK’s lower than expected results to one off issues with an IT Systems upgrade undertaken by TAFE NSW. IT issues resulted in errors and significant delays in enrolment process, ultimately leading to incomplete enrolments and very high withdrawal rates. The company also stated that the performance of SEEK learning has been affected by a competitive environment. Company also sated that certain educational reforms will have a negative impact on the future prospects of SEEK Learning. Seek learning is currently in its 11
th year of operation and has delivered more than 200,000 enrolments and achieved a record full year result with revenue growth of 43% and EBITDA growth of 88% in FY2013. Seek learning introducing 44 new courses and added 4 new partners in FY 2014. Operational efficiencies of the business have so far delivered strong EBITDA margins.
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Domestic + International Numbers (Source - Company Reports)
At the same time, the company did a number of operational initiatives in H2 FY15. The company did a successful pilot of premium talent search with a very high conversion to paid offering along with strong sales momentum in selling premium talent search to a broad consumer base. The company had around 150,000 new SEEK jobseeker profiles added every month. It continued the fast deployment of new product and technology enhancements. The company also took strides in the international market. For the first time, Zhaopin is currently the market leader in both unique employers and jobseekers visits. In Asia, company made strong progress on integration between JobsDB and JobStreet. In Brazil, the investment in product and technology is moderately accelerating paying subscribers in tough macro conditions. The company still expects some revenue and EBITDA growth in FY15 while the NPAT is expected to be in line with NPAT in FY14. The company expects growth in FY16 to be lower due to aggressive reinvestment across the group and negative impact of educational reforms.
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Revenue + EBITDA (Source - Company Reports)
However the technical glitches puts a question mark on the ability to execute the overall strategy of growing the business by building a leading online marketplace across an increasingly global footprint, complemented by synergistic global offerings. SEEK claims that a long term focus on building the marketplace and thus delivering value to jobseekers and hires as helped company achieved healthy growth in the past 17 years while the competitors were often myopic about short term results. The most recent development in this long-term vision was the so called “placement strategy”. The aim of placement strategy is better facilitating the communication and matching of job opportunities to job seekers. The successful execution of placement strategy would have allowed the company to facilitate a growing share of placements that are not being served by current online employment advertising.
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Dividends Growth (Source - Company Reports)
The growth numbers of the company have been impressive otherwise. Last year company delivered revenue growth of more than 22%, EBITDA growth of 29% and NPAT growth of 27%. The company increased dividend to 30 cents per share, an increase of 36% over the previous year’s dividend rate. The company continues to expand its international footprints and the contribution of offshore earnings has been increasing continuously. The company also increased its investment in product and service enhancements and new developments to ensure that they cater to the changing needs of jobseekers and recruiters. Some of these product enhancements included an upgraded talent search platform providing improved search technology and access to better facilitate candidate sourcing; new interaction methods sends jobs and messages to over 280,000 interactions between hirers and candidates; migration of over 100,000 hirers onto the improved cloud based Advertiser centre, helping manage job ads, applicants and conduct candidate searches and enhancing mobile offerings and reach. The company is also acquiring complementary Australian technology businesses. All of this indicates that technology would play an increasingly important role in the future of the company. The company will have to invest heavily in technology up gradation in the near future not out of choice but out of necessity. Amongst all this, the revision of revenue forecast due to technology glitches is definitely a bad omen for the company.
Seek Daily Chart (Source - Thomson Reuters)
The company is currently trading at a stock price of $14.080, which is somewhere close to the 52 week low of 13.970 and further from the 52 week high of 18.990. At the current price the company is trading at a Price to Earnings multiple of 25.180 and a dividend yield of 2.41%. There are other companies in the sector are trading at a similar P/E ratio and yield.
Given the company’s high Price to earnings ratio and its future growth being contingent on yet unproven technology driven strategies, we believe that the stock is
expensive at the current price of $14.11.
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