SEEK (ASX:SEK) share price drops 5% after responding to Blue Orca short seller attack

The SEEK Limited (ASX:SEK) share price is under pressure today after responding to a short seller attack by Blue Orca…

| More on:
SEEK Share Price

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The SEEK Limited (ASX: SEK) share price has returned from its trading halt and sunk lower on Monday.

At the time of writing, the job listings giant's shares are down 5% to $20.43 after responding to a short seller attack.

What was the short seller attack?

On Thursday, Blue Orca Capital released a short seller report claiming, amongst other things, that SEEK's China-based Zhaopin business was operating with fake listings and paying student to create fake resumes.

Blue Orca's commented: "Zhaopin's platform is inundated with fake postings by companies which were deregistered, in liquidation or flagged as abnormal operations." It also claimed to have contacted companies about their job postings on the website and was told "that the postings were fraudulent."

The short seller went so far as to describe the Zhaopin platform as "rotten" and "devastating for Seek's prospects."

And finally, its analysts claim that SEEK is giving off a false impression that it is generating healthy profits and cash flows by paying dividends. However, it believes these payments have "largely been funded by debt."

As a result of the above, Blue Orca believes that SEEK's shares are worth just $7.20. This compares to its last close price of $21.51, which implies potential downside of 66%.

What was SEEK's response?

This morning SEEK responded to Blue Orca's "inaccurate statements" and allegations that it stated are "unsubstantiated."

The company said: "We believe the goal of the Report is to use speculative assertions to generate adverse publicity and then draw SEEK into a public debate, which is consistent with the usual practice of short-seller firms. The fullness of SEEK's market disclosures ensures that market participants have a great deal of information against which to assess the merit, or lack thereof, of claims such as those in the Report."

Nevertheless, it has responded to the report's assertions and strongly disagrees with them.

It notes that Zhaopin strives to be an industry leader in dealing with fake ads and candidate CVs which do occur on all job listings websites globally. It feels the allegations are greatly exaggerated and misleading.

In respect to its accounting matters, the company advised that the report makes unsubstantiated claims in relation to its accounting practices. It notes that these appear to criticise the company for complying with IFRS standards.

Finally, also of note, SEEK defended its cash flows and points out that it has a long track record of generating strong operating cash flows. This includes its Zhaopin business, which has resulted in it having a net cash position of ~$222 million at the end of June. 

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia has recommended SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A set of scales with a bag of money balanced against a timer, indicating growth versus value shares
Opinions

Which ASX sector offers the best value heading into earnings season?

I think one sector is particularly compelling.

Read more »

Green stock market graph.
Share Gainers

Here are the top 10 ASX 200 shares today

It was one for the history books today.

Read more »

Person holding a blue chip.
Blue Chip Shares

4 ASX 200 blue-chip shares to hold but not buy: experts

These blue-chips are worth holding if you already own them, but are too expensive for new investors to buy.

Read more »

A bricklayer peeps over the top of a brick wall he is laying with a level measuring tool on top.
Broker Notes

Are Brickworks shares a buy, hold or sell ahead of earnings season?

Brokers have been weighing property gains, US headwinds, and merger impacts to form a view.

Read more »

A man in his office leans back in his chair with his hands behind his head looking out his window at the city, sitting back and relaxed, confident in his ASX share investments for the long term.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

Green stock market graph with a rising arrow symbolising a rising share price.
Record Highs

The ASX 200 just hit a new record high. Here's why.

The prospect of lower interest rates is pushing the market into new territory.

Read more »

Three guys in shirts and ties give the thumbs down.
Share Fallers

Why Appen, Emerald Resources, IGO, and Strike Energy shares are falling today

These shares are having a tough time on hump day. But why?

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
Share Gainers

Why Boss Energy, DroneShield, Pilbara Minerals, and Polynovo shares are charging higher today

These shares are having a good time on hump day. But why?

Read more »