SEEK Limited (ASX: SEK) is Australia's largest job portal website with a market capitalisation of $5.2 billion. Other online classifieds businesses such as REA Group Limited (ASX: REA) and Carsales.Com Ltd (ASX: CAR) have been great investments since they listed and Seek is no exception to the rule.
In five years Seek's share price and dividends are up 239% and 231% respectively. However, Seek is trading 19% below its all-time high in February 2015.
There are three divisions to Seek's business.
Australian and New Zealand employment
This part of Seek's business provided a solid 15% growth of revenue and 15% growth of earnings before interest, tax, depreciation and amortisation (EBITDA) in FY16. That's quite impressive considering Seek management called the current economy benign.
Having the largest portal of jobs is a self-fulfilling cycle for Seek – as it has the most jobs so jobseekers will look there first. As Seek has the most jobseekers, employers will likely use Seek to advertise.
Seek's aim is to expand its product offerings through penetration of "premium talent search", improving efficiency of matching candidates with hirers and introducing company/employer products to the company review platform.
With the most monthly visits (35 million) and the highest brand awareness (73%), Seek is the clear leader, yet it still has a lot of room to grow.
International
Seek is the market leader in 14 countries, many of which have a large opportunity for growth, with large populations and a smaller percentage of jobs currently hired online.
In FY16 the international division of Seek grew revenue by 18% and EBITDA by 17%.
The largest part of its international business is the Chinese site Zhaopin, of which Seek owns 61.5%. Zhaopin grew revenue by 19% on a constant currency basis, which shows it's growing well. Considering the sheer size of the Chinese population, there is a sizable growth runway here.
Seek also owns Seek Asia which operates in several SE Asian countries and had a great result in FY16. It grew revenue and EBITDA on a constant currency basis by 28% and 43% respectively. Again, with the sheer size of the population in South East Asia, there is a sizable opportunity here too.
There is good potential for Seek to grow in all of these international segments.
Education
Seek Learning had a pretty bad result, with its revenue dropping 48% and its EBITDA dropping 85%. This area has some work to do and perhaps things can only get better?
However, the online education services had a much better result. It grew revenue by 28% and EBITDA by 19%.
The workforce is becoming more skilled with every generation, needing further education to get the jobs of the future. Tying education into the jobs section of the business is a smart move and the synergy could be great in future years.
Risks
I think there are two long-term risks to Seek.
The first is when the next recession comes. Every recession always results in more unemployment and less jobs on offer, which would really hit Seek's bottom line. With China (which is one of Australia's most important partners) at risk of a slowdown, Zhaopin and Seek could both see trouble.
The other risk is the international competitors that are expanding here. LinkedIn and Indeed are both building a presence in Australia – if LinkedIn is able to leverage its network of professionals into an effective employment platform too, that could cause Seek some trouble.
Is it time to buy?
Seek is currently trading around $15, offering a grossed up dividend yield of 3.8% and an expected forward yield of 4.6% by FY18.
I think Seek is a great business that clearly still has a lot of potential for the future and it could be a good long term buy for Foolish investors. At the current price Seek looks fairly appealing and is one for the watch list – it would be particularly good to buy when a recession hits and its earnings temporarily drop due to less job listings.
