An impressive year of revenue growth in Seek’s core ANZ business is the result of greater sophistication in its platform and products. The company is in the midst of extending that platform into Asia and that is weighing on group earnings.
The core ANZ employment business pumped out $530 million of EBITDA in FY22, an increase of 60% as job ad volume surged 39% and yield tipped in 11% growth. The EBITDA outcome included $16 million of platform unification costs.
Job market activity remained vigorous throughout FY22 reaching a high point of 325k job ads in March 2022. Corporate volume growth of 50% now puts this segment at 28% of job ad volumes with SMEs at 40% and recruiters at 23%. Job ad volumes should begin to normalise by FY24f although there may be sectors of the economy with structural shortages and immigration trends may be uncertain.
SEK has taken advantage of the strong revenue environment to lift its investment spending a fair bit in the last few years. Apart from the platform unification spending, we think SEK will ease off on other underlying cost growth in FY23f.
SEK’s dominance of Australian job placements remains untroubled. A revision in survey methodology confirms that SEK’s share of placements sits around 30% with professional networks (LinkedIn etc) a distant second below 9%.
The 3-year platform unification project across FY22-24f is well underway. The purpose is to create uniformity across all of SEK’s APAC jurisdictions by hosting all marketplaces on an optimised ANZ platform. SEK ANZ will then charge SEEK Asia a fee to use the platform.
The Seek Growth Fund is to be deconsolidated from the group and SEK will pay management fees (c$24 million in FY23f) for the $2 billion fund, accounting for its contribution as an associate.
Investment view
SEK is calling out a weaker macroenvironment that is creating downside revenue risks for FY23f. The mid-point of FY23f EBITDA guidance range of $560-590 million implies strong underlying growth if $65 million of platform unification costs are excluded. Net profit guidance is for $250-270 million.
Despite SEK’s concern for the economy, we think volumes will remain strong in 1H23f. If that does not transpire, the company has the ability to reduce costs.
The core tenet of SEK’s strategy is that customers are willing to pay more for additional value. The evidence of its success has been the growth in premium depth products which now account for 36% of ANZ revenue, up from 25% in FY19. SEK is harvesting very good returns for the investment it has made in its platform and products. The strong growth in yield and depth revenue is the proof.
We still see substantial long term growth for this business. The share price is not fully reflecting that opportunity, in our view.
Risks to investment view
If economic growth stalled or turned negative, this could be detrimental to employment markets and job advertising. Competition could take market share if better products and services were offered than SEK.
Recommendation
We have retained our Buy recommendation.
Figure 1: FY22 result
Figure 2: SEK job ads index
Figure 3: SEK ANZ revenue by product
