Australia produces its fair share of world-leading innovations, with Cochlear Limited (ASX: COH) producing the hearing implant of the same name and the CSIRO pioneering the technology that makes Wi-Fi possible across the world.
However, when it comes to businesses that dominate the world stage, there are few Australian companies that can lay claim to that title. Our home grown job search site, Seek Limited (ASX: SEK) is aiming to change that.
If it can leverage its success in Australia and apply those lessons to the rest of the world, the returns for those willing to hold shares for the long term will be stellar. However, playing on the global stage comes with far more challenges that just being number 1 on our little island. The bull and the bear case for Seek are below.
The bull case
It's easy to build a bull case for Seek. The sheer numbers that it can put on the scoreboard are staggering. In 2015, the job portal was visited over 35 million times. Not over the year, but each month.
That befits its place as the number one job portal in Australia and New Zealand, despite many attempts by well-funded competitors over the last decade to erode its market dominance. This market position was the primary driver for a 20% jump in revenue and a more modest 6% rise in net profit tax (NPAT) last year.
The rise in NPAT was due to management reinvesting earnings in its overseas stable of websites. The bulk of Seek's future growth will not come from Australia, but from the international operations it has established in China, South East Asia, Brazil, Bangladesh and Africa.
Seek cleverly aims to limit the risks of international expansion by partnering or acquiring websites and portals that mirror its own position in the early 2000s. In effect, it looks for businesses with large potential audiences, where the majority of job advertising is done in print but migrating to digital, where it can bring capital and know how to accelerate that businesses path to being number one in its market. The business model is a little like that of a venture capital investor, who can also bring experience to the table.
This strategy has seen it earn more than half of its revenue from its international operations, although Australia still contributes an outsize share of the profits. The growth of overseas earnings is an added tailwind as the Australian Dollar shifts into its new lower trading range after the mining boom.
The bear case
However, you do not have to be a student of Australian corporate history to realise that many companies have sought to plant the Australian flag overseas, only to retreat later after expensive exercises destroying shareholder wealth.
In addition, there are strong adaptation and integration risks that come with expanding internationally. A simple example is that Seek's tongue in cheek advertising on buses, trains and even on the back of bathroom doors would not translate in more conservative markets. A further criticism levelled at the company is that the technology is not particularly sophisticated nor tailored, and leads to job seekers being served up with far too many irrelevant jobs.
However, in my opinion, the biggest threat to Seek's international ambitions are the world domination plans by Silicon Valley star LinkedIn. The company began as a simple resume for users but is now one of the most widely visited websites in the world. Unlike Seek, LinkedIn has a far more engaged user base who share many times the data than Seek is able to gain from its users. It has increased its membership base from 37 million in 2009 to just under 400 million at last count. It has also been able to successfully monetise this user base, by charging monthly subscriptions, which translates to an incredibly valuable recurring revenue stream.
Many of those user gains have been in markets where Seek is also competing, including China. LinkedIn's structural advantage over Seek is the trove of user data it is able to gather about its users. Using this, it is able to serve far more accurate jobs to employees, which in turn, makes them more likely to return to the site. Recruiters and businesses also are able to narrow down the pool of prospective candidates using a wide array of search filters based on that same data.
Because of this richness of data, LinkedIn may also benefit from a far stronger network effect in time, as more employers and employees gravitate toward the platform. The network effect is the same thing that has seen Facebook thus far see off a host of social networking challengers, from Friendster to Myspace and Google Plus.
Foolish takeaway
Seek should rightly be lauded for being a first-wave digital disrupter, and exporting its know-how and capital overseas. If it succeeds in establishing itself as a number one job portal in just a handful of the countries it is targeting, the share price will be multiples of the current figure.
However, the strength of the business model of LinkedIn, coupled with the time it takes to build a viable and profitable audience in emerging markets, appear to be strong headwinds to Seek in its international expansion plans.
