SEEK: Jobs ads moderating, yield to help offset

About the author:

Author name:

By Steven Sassine

Job title:

Associate Analyst

Date posted:

22 February 2023, 9:00 AM

Sectors Covered:

Diversified Financials

• SEEK’s (ASX:SEK) 1H23  result was ~2% ahead of Visible Alpha consensus at the topline (revenue of ~A$627m, +21% on pcp), with EBITDA of ~A$283m (+13% on pcp) in line and NPAT excluding significant items (A$135m, +9% on pcp) ~4% ahead. It was broadly a positive result, in our view, however job ad volume growth moderating in 2H23 (particularly ANZ), whilst not unexpected, looks to be a factor in guidance being set at the lower end of previously flagged ranges.
• We adjust our FY23F-FY25F EPS by -5%-+1% factoring in the revised guidance, lower topline estimates across our forecast period on additional conservatism and improved EBITDA margins in SEEK Asia. Our price target is lowered to (login to view). Add maintained.

1H23 result

SEK’s 1H23 result was ~2% ahead of consensus at the topline (revenue of ~A$627m, +21% on pcp), with EBITDA of ~A$283m (+13% on pcp) in line and NPAT excluding significant items (A$135m, +9% on pcp) ~4% ahead.

The group EBITDA margin of 45.2% was down 300bps on pcp, largely due to platform unification spend in the period (ex this spend, the margin was 51%). An interim dividend of A24cps (fully franked) was declared. 

It was broadly a good performance overall for SEK, in our view, having benefitted from yield growth (particularly in SEEK Asia) in an environment of moderating volumes post a strong pcp.

Management has also pegged FY23 guidance to the lower end of its previous ranges (i.e. FY23 revenue of ~A$1.26bn, EBITDA of ~A$560m and NPAT of ~A$250m, we note FY23 consensus was already broadly in line with this). This guidance is predicated on ANZ job volumes continuing to moderate slightly over 2H23 and SEEK Asia’s revenue trajectory remaining similar.

Analysis

SEEK ANZ revenue was up 19% on pcp to A$455m, with EBITDA up 8% to A$276m (margin of 60.7%). Key drivers here being: 1) volume growth (+8% vs pcp), which remains strong but some moderation in 2Q23 off a high base; 2) job ad yield +9% on pcp on increased variable ad pricing and a 33% pcp increase in depth revenue (now 39% of revenue vs 35% in the pcp).

Other points to note:

1. Post recent price rises in Feb-23, management still expects mid-single digit yield growth over the rest of 2H23.
2. The EBITDA margin was down 1.5% on 2H22 on increased opex due to the platform unification investment of ~A$20m in the period.
3. We note FY23 is peak investment in the project with A$110m (A$35m capex / A$75m opex) of the total A$180m set to occur. We continue to expect these incremental costs to be out by the end of FY24 (per managements guidance); 4) As job ad volumes moderate, candidate activity appears to be picking up with average monthly unique visitors up 11% on pcp.
4. Share of placements in AU remained strong at 30.7% (vs 29.7% at FY22).

A key result positive, in our view, was the performance of SEEK Asia post recent investments in the region on brand/marketing. The business is also beginning to extrapolate early benefits from the unified platform (e.g rollout of new budget-based contract structures).

Revenue of A$121m was +~30% on pcp, EBITDA of A$47m (+89% on pcp) and a margin of 39% (vs ~27% in pcp). Drivers of revenue growth was largely yield, with +22% average paid ad yield, mostly due to increased depth adoption and 1% job ad growth.

Engagement metrics look to be improving, with monthly active users up 6% on pcp and monthly candidate applications up 18% on pcp. Hirer activity looks to be largely driven by hirers purchasing Lite (i.e freemium) ads, with monthly unique hirers up 17% on pcp.

On the SEEK growth fund, the adjusted portfolio value is up 38% to ~A$2.25bn (this is post a director revaluation of -18%), with gains largely driven by funding rounds in the last 12 months. SEEK received an interim distribution of ~A$13m (fully franked) in Jan-23. The fund was deconsolidated as of Dec-22 and will be equity accounted (fair value gain on deconsolidation of ~A$930m).

Changes to forecasts and investment view

We adjust our FY23F-FY25F EPS by -5%-+1% factoring in the revised guidance, lower topline estimates across our forecast period on additional conservatism, improved EBITDA margins in SEEK Asia and slightly higher profits from associates.

Our price target is lowered to (login to view). Add maintained.

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