Advanced AI And Freemium Strategy Will Expand Market Share In Asia

Key Takeaways

• Expansion in various markets via innovation and AI improves placement share and market penetration, boosting revenues with increased job postings.
  
• Personalized job recommendations and a freemium model enhance user experience and ad volumes, supporting revenue growth and market share capture.
  
• Revenue decline and reliance on yield growth amid macro challenges and market variability pose risks to future earnings and financial stability.

Catalysts

Engages in the provision of online employment marketplace services in Australia, South East Asia, New Zealand, the United Kingdom, Europe, and internationally.

• SEEK has expanded its placement share across all markets, including Australia, New Zealand, and Asia, supported by product innovation and enhanced AI capabilities. This expansion is expected to drive higher revenues by increasing the number of job postings and improving market penetration.
  
• The company is implementing a freemium model in the Philippines, Thailand, and Indonesia, leading to increased ad volumes and new hirers on the platform. This strategy is aimed at capturing more market share and growing revenue in these regions over time.
  
• SEEK has focused on personalized job recommendations and upgraded algorithms to enhance job search relevancy, which is expected to increase candidate engagement and application rates. This improvement in user experience may positively impact earnings by attracting more job seekers and employers to the platform.
  
• By leveraging advanced AI for better job matching and maintaining pricing flexibility, SEEK aims to continue yielding growth and improve its net margins. This approach allows the company to adjust pricing based on the value provided, thereby enhancing profitability.
  
• The company is generating strong free cash flow due to controlled operating expenses and reduced capital expenditure following their unification project, which is expected to strengthen the balance sheet and support future dividend payments, thus positively impacting investor returns and overall stock valuation.

SEEK Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SEEK's revenue will grow by 10.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.7% today to 19.2% in 3 years time.
• Analysts expect earnings to reach A$272.8 million (and earnings per share of A$0.77) by about March 2028, up from A$50.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$305 million in earnings, and the most bearish expecting A$199 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 43.8x on those 2028 earnings, down from 170.9x today. This future PE is lower than the current PE for the AU Interactive Media and Services industry at 51.0x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.59%, as per the Simply Wall St company report.

SEEK Future Earnings Per Share Growth

Risks

• SEEK's revenue and profit have declined compared to the previous period, highlighting a potential risk to future revenue and earnings if adverse market conditions persist.
  
• The company faces continued challenges from macro-driven volume declines in key geographies, impacting revenue stability and growth.
  
• There is uncertainty and risk around the Asian freemium model as the long-term success and impact on revenue will only be evaluated after a few years, which could affect future earnings if expectations are not met.
  
• Variability in job ad volumes driven by economic cycles and seasonality pose a risk to consistent revenue growth projections and achievement of financial targets.
  
• The heavy reliance on yield growth to offset volume declines may not always be sustainable, particularly if competitive pressures or market saturation affects pricing power, impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of A$26.781 for SEEK based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$30.1, and the most bearish reporting a price target of just A$21.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.4 billion, earnings will come to A$272.8 million, and it would be trading on a PE ratio of 43.8x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of A$23.98, the analyst price target of A$26.78 is 10.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.