The SEEK Limited (ASX: SEK) share price has edged higher in morning trade after the online jobs portal operator revealed the operating results for its NYSE-listed Chinese subsidiary Zhaopin Ltd.
Seek owns around two thirds of the Chinese jobs website that is already the group's biggest revenue earner having clocked $329 million in sales during FY 2016. Moreover, the revenue is growing at strong rates, with SEEK today announcing revenue growth for Zhaopin of 30% for the quarter ending March 31 2017, versus the prior corresponding quarter.
That's the good news though, as much of the revenue growth is coming about via heavy investments in sales, marketing and employee compensation that is demolishing the profit growth. In fact net income over the quarter dropped 24% to around US$6.8 million, as the company takes reinvestment in product and growing market share to another level in a result that may not impress investors.
SEEK's management has repeatedly flagged that it expects Zhaopin to be its biggest contributor to profits in the years ahead, although SEEK International remains a business with serious growth opportunities in other large South East Asia markets, Brazil and Mexico.
Importantly, its core Australian business continues to deliver robust revenue and profit growth thanks to recent reinvestment and it has plenty of levers to pull to keep growing profits over the long term.
Despite some rising competition from the likes of Indeed.com. and LinkedIn, I think SEEK ticks the boxes as a long-term growth prospect. However, at $17.80 the shares look too expensive for me given the growth rates it is likely to produce in the years ahead.
I think SEEK is a stock worth owning, but only at a considerably cheaper price given that there are plenty of other investment opportunities elsewhere on the ASX.
Another stock benefiting from the growth of the digital economy that is actually growing at far stronger rates and now moving towards profitability is founder led cloud-accounting specialist XERO FPO NZ (ASX: XRO). On current valuations I would prefer it as a buy over SEEK.
