Why the SEEK Limited share price is soaring today

Credit: Jason Howie

Shares in SEEK Limited (ASX: SEK) burst out of the gates on Thursday, up more than 10% shortly after the ASX open.

This price action marks a welcome return to form for Seek. After this morning’s spike, investors in the job search site will still have lost around 14% of their capital over the last 12 months if they bought shares this time last year.

Why did this happen to SEEK Limited shares?

Today Seek revealed a strong result for the six months ending 31 December 2015. Underlying net profit after tax (NPAT) grew by 9% to $102.4 million.

Seek’s Australia and New Zealand business performed well in what CEO Andrew Bassat described as ‘subdued macro conditions’. With more than 7.1 million user profiles on its platform — representing growth of 41% from the prior comparable period — Seek is capturing plenty of consumer data and the group enjoys a market leadership position.

Seek’s real growth engine, however, is its international business. This division operates in high growth markets across 14 countries. The segment delivered a record result with earnings before interest, tax, depreciation and amortisation (EBITDA) growing by 36% to more than $100 million.

Seek’s reported profit was even stronger thanks to some significant items in the period. Through an initial public offering, the group sold its 50% stake in IDP Education Pty Ltd (ASX: IEL) and netted a profit of more than $181 million — a cash return of nine times its original investment.

Seek capped its healthy half-year by announcing an interim dividend of 21 cents per share — up 11% from one year earlier.

There really was something for everyone in today’s result, which explains its positive impact on the Seek share price.

What’s next for SEEK Limited?

Seek has reaffirmed the profit guidance it provided in August 2015, which confirms that the group’s growth story remains intact. It enjoys enviable positions across multiple markets and has many options to glean and monetise insights from its massive user info database. This should help Seek continue to go from strength to strength.

However, investors in Seek should remain mindful of the disruptive threat from well-resourced competitors. You should also be aware that as Seek’s international businesses become more important, foreign exchange movements can impact more dramatically on the group’s results.

Foolish takeaway

When it comes to investing in online businesses, it can be tempting to focus on the ‘new kids on the block’. But Seek’s result today shows that in volatile markets, established players with global ambitions can offer much more reliable profits.

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Motley Fool contributor Tim Dohrmann has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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