It's been a horrendous day for shareholders of SEEK Limited (ASX: SEK) which has plunged on the back of an earnings downgrade. The stock fell nearly 14% to a new 16-month low of $14.21, wiping more than $700 million from its market value, compared to a 0.1% gain for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
SEEK cited one-off issues with its SEEK Learning division as the primary reason behind the downgrade, stating that the issues related to an IT systems upgrade undertaken by TAFE NSW. Although SEEK Learning had fulfilled its sales obligations, a number of enrolments remained incomplete which ultimately led to "very high withdrawal rates".
As recently as February, SEEK told investors to expect "solid growth" in both revenue and earnings before interest, tax, depreciation and amortisation (EBITDA). As a result of the issues highlighted above however, SEEK expects revenue will still experience 'solid growth', although EBITDA should be 'moderately lower' than revenue growth. Meanwhile, net profit after tax (NPAT) for the second half should be in line with the $94.1 million profit recorded in the first half.
Adding to its woes, SEEK has been forced to implement a number of strategic and operational initiatives to improve the performance of SEEK Learning due to tougher competition which has impacted the division's second-half results. EBITDA from SEEK Learning should be between $31 and $33 million. All other guidance statements made in February were re-affirmed.
In light of today's update, investors may want to hold off from purchasing shares in the business, for now. Although SEEK is a high-quality corporation, investors were anticipating strong growth over the coming years which pushed the stock to a rather lofty valuation. It's very possible that the stock will remain somewhat volatile in the near future which could introduce more attractive opportunities to buy.
In the meantime, there are plenty of other great companies which could generate even greater returns over the coming years.
