UPDATE: Trade Me profit growth slows in 2014, forecasts 'subdued' earnings for 2015
(Adds CEO comment starting in fourth paragraph, updates shares)
By Tina Morrison
Aug. 20 (BusinessDesk) - Trade Me Group, New Zealand's largest online auction site, posted slower profit growth for 2014 and warned earnings would remain "subdued" in the coming year as it reinvests in its business.
Trade Me profit rose to $80.1 million, or 20.2 cents a share, in the 12 months to June 30, from $78.6 million, or 19.84 cents, a year earlier, the Wellington-based company said in a statement. Revenue increased 9.7 percent to $180.1 million while expenses jumped 26 percent to $51.4 million.
Profit growth has slowed since the company was spun out of Fairfax Media in 2011 in an initial public offering. The latest year's 1.9 percent increase in profit lags 2013's 4 percent gain and an 8.4 percent pace in 2012. The company today forecast another year of "subdued" earnings growth with revenue forecast to increase at low double-digits and another year of "quite substantial" expense growth as it adds more staff, faces higher costs from an expanded business and spends more on promotion to position the company for longer term expansion.
"We expect to grow revenue and earnings before interest, tax, depreciation and amortisation over the coming year but our focus will be on improving the products we offer, strengthening our sales and account management and ensuring stronger growth in the medium to long term," said chief executive Jon Macdonald. "It's certainly our intention that we will start to see greater earnings growth in FY16."
Trade Me posted a 4 percent increase in annual Ebitda to $128.7 million, ahead of the $125.8 million mean analyst estimate compiled by Reuters. The company is forecast to increase Ebitda by 3.9 percent to $133.7 million in the 2015 financial year, accelerating by 6.2 percent to $142 million in 2016, according to the Reuters estimates compiled before today's announcement.
Still, Macdonald said the company needs to get traction in its general items auction business which is proving to be "hard graft" as it comes up against larger rivals including Amazon and ASOS.
In Trade Me's general items auction business, Ebitda declined 2.1 percent to $50.8 million in 2014 as revenue slid 1.1 percent.The value of general items sold declined 0.4 percent in the year, while the volume slid 4.5 percent and the average sale price rose 4.3 percent, reflecting a trend of fewer higher priced items.
"We want that business to be growing," Macdonald said. The company is working on improving the functionality and design across its general marketplace, enhancing its mobile offering and increasing its online retail offering by bringing new overseas retailers onto the site, he said.
"We have learnt a lot over the last year and I think we are onboarding those retailers a lot more effectively than we were a year ago," he said. Recent sellers to join Trade Me include mytools, surfstitch, cosmeticsnow and apparelsave.
"We are working hard on it and we have found it difficult exactly to predict when we will be able to demonstrate that meaningful growth," Macdonald said.
Trade Me's classified advertising unit increased Ebitda 12 percent to $62.9 million as total revenue rose 23 percent. Property advertising revenue gained 12 percent, motor vehicle advertising increased 29 percent and job advertisements advanced 26 percent. Earnings for the company's other businesses, which include advertising, travel, holiday houses, online dating, Pay Now and online insurance comparisons, slipped 3.5 percent to $15 million as revenue rose 2.8 percent.
The company expects to add 96 new employees this year after taking on an extra 54 last year, 26 of whom were in technology roles. That would take total staff numbers to 429 by the end of the 2015 financial year from 333 in 2014.
"We are still hiring assertively, especially to build up our technology team so that we can speed up our product development," Macdonald said.
Employee expenses rose 16 percent in the past year to $24.6 million, while the company's web infrastructure expenses increased 5.3 percent to $3.2 million and promotional costs jumped 168 percent to $7.4 million.
Trade Me will pay a final dividend of 8.4 cents a share on Sept. 23, taking the annual dividend to 16 cents, compared with 15.8 cents last year.
Shares in Trade Me slipped 1.1 percent to $3.48, taking their decline so far this year to 13 percent. The stock is rated an average 'hold' according to analysts polled by Reuters.