Can the Trade Me Group Ltd share price rise further from here?

With expenses expected to fall and revenue growth to continue, Trade Me Group Ltd (ASX:TME) could surprise the market

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published May 5, 2016 2:01 pm AEST

Trade Me Group Ltd (ASX: TME) is New Zealand's answer to Ebay, Carsales.com Ltd (ASX: CAR), REA Group Ltd (ASX: REA) and Seek Limited (ASX: SEK) all rolled into one.

The group offers classifieds for everything from personal goods to cars and houses, as well as jobs, insurance and holiday houses.

The company's rise in New Zealand was nothing short of phenomenal, but in recent years, the company has struggled to grow – limited by its dominance of the small (comparatively) New Zealand market.

That is reflected in the 9% increase in revenues to NZ$105.6 million for the six months to end of December 2015, and the 0.3% increase in net profit to NZ$38.5 million. Net profit has been relatively flat over the past five years.

But in a recent presentation, the company says it is now curtailing its heavy spend on expenses – with staff doubling from December 2012, marketing expenses more than tripling and substantial portions of its platform have been redeveloped.

Trade Me financials — Source; Trade Me presentation

Should Trade Me be able to grow revenues at a decent clip – like it has over the past five years – then shareholders should start to see more drop through to the bottom line, and profits and earnings grow.

Recent trends in merchandise sales have increased – after falling in 2014 and early 2015 – and revenues appear to be growing nicely in Property and Motors.

Foolish takeaway

Trade Me should be able to grow earnings nicely from here, which may see the share price add to the 10% gain so far this year.

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