Back when I was entering the workforce, you searched for a job by buying a newspaper and scrolling down the classified listings. (By scrolling I mean moving your finger and eyes down a paper page, rather than flicking your finger on a screen). As the internet started to gain momentum, the founders of SEEK (ASX:SEK) quickly realised that this process could be so much more efficient by creating a well structured database coupled with an easy to use user interface, which could be accessed by anyone with a computer and a dial up modem.
Seek was launched in 1998 and soon graced the BRW Fast100 list as one of Australia’s fastest growing businesses. It wasn’t long before newspaper classifieds for job ads were a thing of the past, and Seek dominated the online job ads marketplace.
Job ads is a competitive market and Seek estimates they have about 31% market share in Australia and about 23% in the Asian markets where they operate, namely Indonesia, Singapore, Malaysia, Philippines, Thailand and Hong Kong. The key to success is to build a strong marketplace which is attractive to employers, thereby generating the most listings, which in turn makes it attractive to job seekers as there are the most opportunities. Having the most job seekers further increases the attractiveness to employers as it increases the chance of finding the right person thus creating a network effect. In Australia, Seek’s lead over their nearest competitor is 3.1 times.
Last week I wrote about another marketplace business Rea (ASX:REA). In that case the revenue drivers over the last year had been a decline in volume, but an increase in yield (i.e. pricing). It is the same story with Seek. In their ANZ business, which accounts for 71% of revenue, job ads volume declined by 4% in FY23, whereas average ad yield was up 8% resulting in an overall increase in revenue of 5%. Despite this decline in volume, job ad volumes are still 21% above their FY19 (pre-Covid) level.
Seek earns good margins, a byproduct of their strong competitive advantage. Gross margin for the ANZ business was 60%. Overall operating margin was 26.7%. These margins are contributing positively to the Quality Score of 74. The Health Trend of 4 is detracting from the Quality as a number of the…
