ASX 200 stock Seek Ltd (ASX: SEK) is under selling pressure on Thursday after releasing a market-sensitive announcement before the open.
At the time of publication, shares in the online employment marketplace are nearly 2.5% in the red and swapping hands at $20.09 apiece.
This extends losses to nearly 9% for the past month of trade, with the share down from yearly highs of $27.10 apiece on 8 March.
Let's see what's happened.
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ASX 200 stock sold after China impairment
In an announcement on Thursday, Seek advised it will recognise a $141 million impairment in an FY24 charge related to its investment in Zhaopin, a Chinese online recruitment platform.
The ASX 200 stock reviewed its assets as of 30 June 2024, resulting in the impairment. Seek has a 23.5% equity stake in Zhaopin.
Subsequently, the value of this investment has been marked down to $43 million, with $75 million in net proceeds outstanding.
The company gave a broad overview of the reasons behind the decision.
The Chinese economy had previously been expected to return quickly to broad-based growth after the easing of COVID restrictions in January 2023.1 Instead, the recovery has been modest with no clear visibility on sustained recovery. In terms of employment markets, blue-collar employment has performed considerably better than the white-collar market in which Zhaopin primarily operates.
Competition in the white-collar market has intensified in this period of lower than anticipated volumes.
As a result, Zhaopin's revenue has declined, as have revenue and cash flow forecasts in the near
to medium term.
As a result of the impairment, the ASX 200 stock will see around $5 million less in net profit this year.
What do brokers say?
Brokers are yet to specifically comment on the impairment, but UBS analysts recently kept a buy rating on the ASX 200 stock. Although, the firm reduced its price target to $27.10, according to my colleague James.
UBS believes the online classifieds sector is set for growth due to improving yields and price increases. While it trimmed expectations for FY25, UBS sees Seek shares as undervalued and expects a strong rise over the next 12 months.
On the other hand, Goldman Sachs rated Seek shares as a sell this week. The broker has a 12-month price target of $20.60 on the stock.
Goldman expressed concerns about cyclical volume exposure amid a robust labour market:
We are Sell rated given we believe the company is the most exposed to a near-term deceleration in earnings driven by its: (1) Cyclical volume exposure against a very robust labour market in CY22 (incl. headwinds from job-reposting); (2) Pro-cyclical depth noting flexible contract structures and low applicant levels currently; and (3) Smaller yield tailwinds vs. other verticals.
However, Goldman Sachs also noted potential upside risks, including stronger volumes, dynamic pricing, and margin expansion. This could be positive for the ASX 200 stock.
What's next?
Seek plans to release its FY24 financial results on 13 August. Further details on today's announcement will be provided then.
But today's sell-off isn't a new trend. Seek shares have been under pressure for some time. In the past 12 months, the ASX 200 stock has slipped more than 16% into the red.
This is a 24% disadvantage compared to the S&P/ASX 200 Index (ASX: XJO) in the same time.
