Every time Seek reports its results and produces “that” graph and “that” comparison Fairfax directors must wince and think of what might have been.
This year, as they put the finishing touches to their own results, scheduled to be released on Friday morning, the gulf in performance between Seek and their own businesses would be particularly galling.
Fairfax is expected to reach its already-downgraded guidance of $600 million of earnings before interest tax, depreciation and amortisation, while Seek has just announced a 16% increase in EBITDA (26% normalised) that included a 43% increase within the core Seek Employment business that once formed one of Fairfax’s famed “rivers of gold”.
The slides in Seek’s results presentation – and they are always in its presentations – that would grate with the Fairfax directors and management show (a) a comparison of the migration of job ads from print to online in the US and Australia and (b) a comparison of the share of job ad volumes and share of spending between online and print in Australia.
The first demonstrates that the migration of job ads to online in Australia is broadly tracking what has happened in the US, with about a two-year lag. They are not perfectly correlated but the trend over the past six years is very clear.
Over that period the online share of job ads in the US has gone from about 25% to almost 80%. In Australia it has risen from the high teens to 52%.
The second slide shows that online ads now represent 83% of Australian job ad volumes but only a 52% share of spending.
The message from the slides is that the continuing displacement of print ads by online ads is inexorable and has a lot of momentum and potential left in it and that, relative to a 17% share of the volumes, print captures a disproportionate share of the value.
Or, as Seek puts it, there is still $200 million to $250 million a year of revenue that is still up for grabs, most of which will inevitably also migrate online.
Seek ought to be by far the biggest winner from that migration, given that it has a dominant 70% share of online job ads and even higher shares of online visits and total time on site. News Ltd’s CareerOne is a distant second, with 18% of the ads, and Fairfax’s MyCareer, despite growing its ad volumes 24% (while CareerOne’s share actually slipped one%) is even further behind, at 12%.
As Fairfax and News know from that long but rapidly receding era when Fairfax dominated classified ad markets, dominance in classified markets entrenches itself – the dominant player becomes the market. That’s where Seek is in online job ads.
The operating leverage of online is even greater than it used to be in print classifieds. Seek Employment grew revenue 30% last year and EBITDA by 43%. Its EBITDA margin swelled from 54% to 60%.
The pricing differential between the physical ads and online ads is so substantial that Seek now has the ability to edge up prices and still attract the combination of increasing volumes and yields.
There are some segments of the market that Seek has found more difficult to shift from print than others, particularly executive job ads, SMEs and government. It said today it is growing government volumes and revenue, has increased its SME penetration and has recently re-launched its Seek Exec product to increase the pressure on that disproportionate revenue share still held by print.
While Seek Employment is the core of the group and is still experiencing that virtuous cycle of volume and margin growth, and the group’s investments in offshore online job sites are also displaying similar (albeit not as mature) characteristics, its education offerings had a poor year.
Seek Learning’s EBITDA was down 22% and Think’s was down 14.8%. JobsDB’s two-month contribution of a loss of $3.4 million included $6.2 million of transaction costs. Conditions in those markets have been challenging, although Seek remains confident of the businesses’ medium-term potential.
There was another slide in Seek’s presentation more relevant to itself than to its traditional competitors. It devoted a slide to the business social networking site LinkedIn, which has claimed to be adding a million new members every week.
While it presents as a business networking site, in reality LinkedIn is a recruitment business, hosting job ads and facilitating searches, that leverages the vast amounts of data it has on its members.
Seek is comfortable that it isn’t threatened by LinkedIn, but not complacent. It makes the point that LinkedIn’s strategy means that increasingly it competes with recruiters (who place the ads) and that job ad searches are less than one% of total activity on the site. It believes its model delivers a much better return on investment for advertisers and says it will continue to focus on its efficiency in delivering those returns.
Seek’s Andrew Bassat would be fully aware that he can’t be complacent when a different model for advertising emerges. If he were tempted, he would only have to look at the Fairfax numbers of Friday for a reminder of how destructive these new online models can be for incumbents.
This article first appeared on Business Spectator.
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