Australia | Aug 14 2020
Seek has taken a sober view on the FY21 outlook for job advertisements, expecting further declines until a slow recovery in the second half.
-Dynamic pricing should deliver longer term benefits
-Continues to invest in core business and Early Stage Ventures
-Upside hinges on monetising utility provided to recruiters and SMEs
By Eva Brocklehurst
As unemployment grows and a growing number of industries shed personnel, Seek ((SEK)) has bitten the bullet, framing a substantially weaker earnings scenario for FY21.
The company's "illustrative" operating earnings guidance is calculated at $330m, well below expectations, and the drivers appear to be largely cyclical: reduced Australasian revenue on lower volume assumptions, lower listings growth in Asia and a softer outlook for Zhaopin.
Goldman Sachs assesses the company is taking a conservative stance but suspects there is greater leverage in job advertisement yields to the economic cycle than previously appreciated. The broker revises FY21-23 estimates materially lower to reflect the FY20 result and the FY21 outlook but expects volumes to recover and the company benefit from its investments.
Ord Minnett forecasts Australasian job listings in FY21 will drop by -18.5% and Australasian revenue is unlikely to match FY19 until FY22.
Over the longer period there are positive offsets as dynamic pricing has now been launched for all customer groups and UBS suggests this may have potential to grow the earnings base, although costs would have to revert from from the lows of FY20-21.
Morgans finds commentary around the yield impact of a transition to a variable pricing model underwhelming at present but acknowledges this is understandable given the current operating environment.
The "illustrative scenario" is telling, Credit Suisse asserts, in that it effectively assumes declines in billing in July will continue throughout the first half before there is some recovery in the second half. The broker significantly reduces estimates to reflect this but remains of the view that the pricing model transition should deliver longer-term benefits.
Morgans also points out, in a period where most companies are tightening up, Seek continues to invest in both its core business and Early Stage Ventures. Investment in analytics, architecture, security and innovation increased by 15% in FY20.
The company has also sought to reassure the market on the merits of its current investment strategy, based around human capital where there are very large addressable markets. Morgans notes geographic expansion of marketplaces, which has had mixed results, ceased some time ago. Hence, the attraction is now in the large end-markets the company is seeking to dominate.