This morning online jobs advertising business SEEK Limited (ASX: SEK) posted a half year normalised net profit of $94.1 million on underlying revenue of $395.3 million for the six months ending December 31, 2014. The normalised net profit and underlying revenue were up 9% and 17% over the prior corresponding period.
Australia and New Zealand
With Seek.com having entered the Australian vernacular in recent times the group's domination of the domestic online jobs marketplace continues with earnings of $75.8 million on revenues of $132.9 million.
The capital light business model makes for a healthy 57% earnings margin, with the business re-investing in its placement strategy and adjacent career products to leverage future growth.
However, the fact that earnings were only up 6% over the pcp may disappoint the market given that SEEK is priced for rapid growth. Moreover, there's little doubt that SEEK is facing increased competition from Linkedin and other websites, while rising unemployment is also a headwind.
Although the group said to expect moderate earnings growth from its domestic business, with potential for an upside surprise if macro conditions improve.
International expansion
Businesses like SEEK enjoy significant structural tailwinds as prime beneficiaries of the migration from print to online advertising in jobs marketplaces worldwide.
Indeed, it's the tantalising international growth prospects which have left SEEK trading on over 30x expected earnings for much of the past year.
SEEK is already growing strongly in China via its Zhaopin website, which posted earnings of $31.8 million on revenue of $117.6 million, up 29% and 31% respectively on the pcp.
Brasil online is another fast-growing international business with earnings of $22.4 million on revenue of $60 million, up 8% and 22% respectively.
SEEK Asia is another business with big potential via its JobStreet acquisition and all these emerging markets currently have low internet penetrations, eye-wateringly huge populations, and long growth runways. The investment case is plain to see, but questions remains over whether the group can deliver.
Outlook
SEEK shares have dropped nearly 10% on today's announcement, which shows what happens to growth stocks when they can't live up to the market's high expectations. Notably, other internet-based rivals like REA Group Limited (ASX: REA) and Carsales.Com Ltd (ASX: CRZ) are also ascribed lofty multiples due to their high profit margins and juicy growth prospects.
However, selling for $16.92 SEEK is probably still on the expensive side given its current earnings multiples and forecast earnings growth, with the domestic business in particular facing a tougher outlook.
In my opinion though it remains one of the best growth stocks on the ASX and if able to execute its international expansion successfully then today's price may seem cheap yet.
