Investing

SEEK signals start-up investments as revenue cracks $1 billion

SEEK chief executive Andrew Bassat will increase the company’s investments in early-stage ventures and could buy more start-ups as the online employment and education business positions for the next wave of HR transformation.

The tech company cracked the $1 billion revenue milestone for the first time in the 2016-17 financial year, an event Mr Bassat professes he’d never imagined the $6.1 billion firm would get to in its early days.

“It actually slipped me by … we’ve been focused less on the short-term numbers and more on the strategy for the future, but it’s more than we thought we’d get to,” he said.

The company reported revenue growth of 9.1 per cent for the year to June 30, going from $965.4 million to $1.05 billion. At the same time its statutory net profit was $362 million, compared to $399.4 million in the previous corresponding period. But, when significant items and its early stage ventures were excluded, SEEK’s profit was $220.8 million, compared to $198.1 million in FY16.

This figure narrowly exceeded SEEK’s guidance of $220 million, but failed to impress investors who pushed the company’s shares down more than 5 per cent to $16.9 in early trade, largely on the back of the company’s forward looking estimates that saw costs rising faster than revenue.

SEEK has invested in a number of early-stage companies such as Melbourne employment marketplace Sidekicker, job application tracking and client relationship start-up JobAdder, worldwide job search aggregator Jora, Brazil’s Catho Education and Malaysia’s JobStreet Education.

Mr Bassat said the company planned to continue backing these ventures, and would also hunt for new early-stage opportunities in the next 12 months.

“There are some really smart teams out there solving problems that make sense for us to be involved with,” he said.

When asked if in the coming years the company would look to acquire any of the firms it has invested in to date, Mr Bassat said this would be likely.

“It will be a mixture. Some will make sense for us to integrate fully into SEEK and role out across our audience,” he said. “Others may end up making sense to stand alone, with or without a relationship with SEEK.”

Morgans senior analyst Ivor Ries said the company’s decision to back early-stage businesses was fitting with the mentality that companies need to invest for the future or crumble.

“Some people wish they would grow profits faster … but in terms of growing the business, the history of all these online companies is that those that don’t keep investing will eventually die. So Andrew Bassat is sticking to the rule book,” he said.

International markets

About 60 per cent of SEEK’s revenue is generated offshore in Asia, Brazil, Mexico and China, but in the last year its Brazil operations continued to struggle due to a weak economy and growth in south-east Asia remained slow.

Its Asian, Chinese and Mexican operations were also hit negatively by local currency conversions.

Despite being its oldest market, the Australia and New Zealand region posted the strongest growth for the company in Australian dollars, recording revenue growth of 14 per cent, while Zhaopin’s growth was a close second at 13 per cent. But SEEK Asia, Brasil Online and Mexico’s Online Career Centre (OCC) all declined.

In local currency terms Zhaopin, which SEEK is taking private alongside private equity firms Hillhouse and FountainVest, recorded the strongest growth, leaping 24 per cent. It’s also had 20 consecutive quarters of 20 per cent-plus revenue growth.

“They’re enormous markets and we’re making good progress. They’re much earlier stage than Australia and we’ll keep investing in those products and technologies. The hope is that those businesses should be a whole lot bigger in revenue, profit and usage terms than Australia before too long,” he said.

“The Australia and New Zealand growth has been very pleasing. Five to six years ago we spoke about the need to invest in our technology and without that our revenue growth here would have been muted.”

Education

In March SEEK upped its stake in Online Education Services from 50 per cent to 80 per cent, paying its joint venture partner Swinburne University $118.5.

Up to March 31, SEEK’s stake in OES equated to $29.2 million in revenue, Mr Bassat said by increasing the company’s stake in the venture it would unlock value by opening up new education partnership possibilities, such as the one it has formed with the Western Sydney University.

“Our new partner, Western Sydney University, has a strong reputation for innovative curriculum and equipping students with relevant career-related education,” he said. “Western Sydney University is expected to have a significant impact in increasing OES’ addressable market.”

If SEEK locks in more partnerships like the one with Western Sydney, Mr Ries said it had the chance to significantly grow the business.

“They’re doing a better job that most other players in terms of job board operators. They’re growing the business not just through expanding job boards, but into new areas like education,” he said.

Looking forward, SEEK forecast an FY18 net profit after tax, excluding significant items and before deducting investments in early stage ventures, of $220-230 million. It has also tipped revenue growth in the range of 20-25 per cent.

It will pay a final dividend of 21¢ a share.

For full coverage of today’s earnings, visit the AFR Results Wrap.

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