Hidden talent

RESULTS ANALYSIS

Need To Know

• Small earnings miss. EBITDA $546m cf market $557m.
• Disappointing FY24 guidance reflects short term concerns on employment trends.
• Platform Unification program nearing completion; will unlock significant growth across Asia.

Investment Implications

A soft FY23 result and conservative guidance for FY24 has unnerved the market on SEEK. The longer term outlook is far more promising as the major platform build in Asia nears completion. The foundations of SEK’s business are rock solid, and its yield-driven earnings growth can add a quantum step up once the Asian business fully adopts the model. Share price weakness today provides a buying opportunity, in our view.

FY23 result. Group EBITDA $546m +7% on last year was below  market expectations of $557m. Adjusted net profit of $255m (excludes the SEEK Growth Fund and significant items) was down -1% on pcp.

ANZ revenue growth of 5% delivered EBITDA of $520m down -2% on last year. A 4% decrease in job ad volumes (cf +39% in FY22) was offset by yield growth of 8% (+11% FY22) while operating spend increased 7% including a further $24m investment in the Platform Unification project.

Following a stellar first half result, SEEK Asia extended its run to deliver $246m revenue and $97m EBITDA (+86% on FY22). As the Platform Unification project moves into its final stages, this will supercharge the opportunity in the developed markets (Hong Kong, Malaysia, Singapore) and the emerging markets (Indonesia, Thailand, Philippines) in which SEK is building its presence. Here again, the growth is being driven by yield (+28% in FY23) and margin growth.

Outlook. SEK is eyeing up a $2bn revenue opportunity by FY28 consisting of ANZ volume growth (neutral to low single digit growth), high single digit ANZ yield growth and double digit Asia revenue growth.

For FY24, the company is completing the platform unification process, but has warned of uncertain economic conditions potentially pushing up unemployment and reducing demand for labour. SEK said if things do turn sour, it can adjust its cost base to suit.

FY24 EBITDA guidance is $520-560m and net profit of $220-260m. This is a lower range for both metrics indicating SEK’s concern on short term market behaviour. We think the upper end of the EBITDA guidance is achievable so any consensus downgrades should be modest.

Investment View

SEK’s ubiquitous brand in Australia drives all aspects of the job advertising and placement process. It attracts 30m monthly unique visitors to the website creating 476k monthly paid ad volume at an average yield of $181 per ad. The result is market share of 31% of job placements in ANZ and 23% in Asia.

The Platform Unification program is well on track for implementation commencing November 2023. Notwithstanding the already impressive growth in SEEK Asia, this program will unlock the real potential of the much larger addressable market across the region. Replicating the success of the ANZ model across Asia will add significant value to the group. The run-rate spend on the project is already in decline and will cease by the end of FY24.

The secret sauce to yield growth is the increased variable pricing and adoption of depth products. SEK has recognised for many years that customers are willing to pay for product innovation and this is the key driver of earnings growth. Job ad volumes fluctuate with economic conditions and while this is an important factor, it can distract investors from the much greater impact of yield growth.

The negative reaction to this result provides a buying opportunity, in our view.