Online employment marketplace Seek [ASX:SEK] had a tough morning on the markets. Its share price dropped by 6.25% to $24.15 after missing analyst expectations in revenue and signalling a challenging FY24.
Today’s drop wiped out all the gains the company had seen in the past 12 months, with the share price down 0.90% for the past 12 months. Even before today’s drop, Seek had lagged behind the ASX All Technology Index [ASX:XTX], which is up by 30% so far in 2023.
Seek’s reporting also included results from its $2 billion Seek Growth Fund, which founder Andrew Bassat established as a vehicle for investment into Series A employment-related start-ups.
Today’s earnings mark the first time it has been decoupled from the growth fund. A decision was driven by investors’ concerns that Seek’s balance sheets were being muddled with the growth fund.
If the change intended to give a clearer picture, then results were clearly displeasing to investors who sold off heavily this morning.
Source: TradingView
Seek’s earnings report
Seek’s share price took a hit this morning, with shares down by 6.25% after reporting a 10% increase in revenue to $1.22 billion, below analysts’ expectations of $1.25 billion.
Reported net profit after tax (NPAT) was down by 16% to $203 million as the company’s finances excluded the growth fund’s results.
Seek’s leadership attributed the decline in profits to the higher operating expenses it felt from high-interest rates.
Operating expenses for the company were up by 12% due to higher wage costs and ‘inflationary impacts’ affecting their debt repayment costs.
For Seek, the past 12 months have been fairly muted. The expected rise in unemployment among its main markets has yet to materialise. Meanwhile, the company said it focused on maintaining market and brand metrics.
In its Asian division, the company completed a platform unification project that it says will help bring costs down.
In its Australia and NZ sites, the company reported ‘record visits and higher applications per ad‘ during the year, which it claims will lead to future growth.
Seek CEO, Ian Narev, commented on the report today, saying:
‘In ANZ, after unprecedented demand led to record job volumes in FY22, volumes moderated in FY23. However, the job market remains tight with a low unemployment rate. Applications per job ad have recovered to pre-pandemic levels due to increased candidate activity and lower job volumes. Our dynamic pricing and suite of depth products have enabled us to respond to this environment and better align prices to the value SEEK delivers.
‘In Asia, we achieved a major milestone with the implementation of a new budget-based contract structure across our six markets. This is a direct result of the Platform Unification program. The new structure has led to increased substitution of depth products for basic ad products, which along with higher ad prices has delivered higher yield to more than offset lower paid volumes.‘
The company has given FY24 guidance of $1.18–1.26 billion with an EBITDA of $520–$560 million.
Tough year ahead for Seek
Seek warned in its report today that the economy could put more pressure on its profits throughout 2024
‘Economists are generally forecasting lower levels of economic activity in the markets in which we operate,’ said Ian Narev.
For its ANZ division, this may mean a higher unemployment rate and reduced demand for labour which could directly hurt their bottom line.
Job postings so far this year for Australia and NZ show things are slowing on its platforms.
Source: Seek (ANZ Division Results)
These lower postings have turned the company’s focus to bolstering its listed company profiles, hoping that future listings will land successful placements and higher margins.
It remains to be seen if Seek’s strategy pays off. However, its strong brand recognition metrics do point to a healthier long-term outlook than many investors are currently trading on.
In the shorter term, its Asian platform unification project will be completed in FY24. This should help bring costs down significantly for the company.
Incremental operating costs are already down by 44% from their monthly peak in FY23. These changes could provide a solid capacity for strategic investment.
Investment discipline will be required to maintain margins during these slower years for the company.
Overall, the share price movements today reflect bearish sentiment by investors that see trades usually reflect results that are typically in the short term. With market uncertainty, it’s understandable that the company has borne the brunt today in its share price.
From a longer-term view, Seek will likely maintain its position as a leading brand and employment platform and should be able to return to greener days in the future.
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Regards,
Charles Ormond,
For Money Morning
