Online education and jobs advertising business SEEK Limited (ASX: SEK) reconfirmed its financial year 2017 guidance today for a profit between $215 million to $220 million before investments in early stage ventures and a $16 million hit to profits due to major setbacks at its SEEK Learning business.
The learning division has been wrecked by government cuts to the vocational educational sector that mean SEEK will write off $8 million in the value of the business and take $8 million in restructuring and redundancy costs.
These problems had largely been flagged to the market ahead of today's AGM, although SEEK is not throwing in the towel on education and is launching a new business it described as like a 'Trip Advisor' for education courses and providers.
The startup is expected to post losses of $6 million in FY17 which will be accounted for within the overall early stage ventures costs.
The other recent disappointment for SEEK investors is the performance of the Brazil business, Catho.com.br, which saw revenues and earnings fall 23% and 22% over FY16 thanks to the free falling Brazilian currency and deepening economic crisis in the country as unemployment soars, jobs disappear, and wages tumble.
The worsening problems in Brazil putting into question the timing of SEEK management's decision to lift its ownership in Brazil online from 51% to 100% in June 2016 on a chunky acquisition price-to-earnings multiple of 9x.
Fortunately, SEEK's core domestic business, Mexican, Chinese and other Asian operations continue to perform strongly, with ongoing heavy investment in developing more emerging markets an additional carrot for investors prepared to back management.
Outlook
The scalability of SEEK's global operations make it an attractive investment proposition, but as management readily acknowledges the short-term financials will be affected by investment for the medium to long term.
The company's ongoing success is also threatened as the competitive environment toughens due to Linkedin and others like jobs board rival Indeed. However, SEEK operates in huge global markets and may be able to keep growing profits at strong rates long into the future.
The stock sells for $14.72 today and may yet deliver strong returns, although on current valuations I prefer its real estate rival REA Group Limited (ASX: REA) as it appears to face lighter competitive headwinds.
