Can Seek continue its market-beating run?

Seek (ASX: SEK) has risen 38% in the past 12 months. The rise has been due in part to the strong rally of the ASX, but mainly due to the future prospects of the company. Seek has three revenue sources: Australian domestic employment advertising through, education services, and investments in market leading international job websites.

Australian online job advertising is the bread and butter of Seek’s business, generating around 60% of revenue and 80% of profits. captures over 80% of all Australian online job search time, well above competitors CareerOne (owned by News Corp (ASX: NWS)) and MyCareer (owned by Fairfax (ASX: FXJ)). Profits are generated on a per-ad basis and as a result profits are expected to suffer in periods of increasing unemployment. Seek’s market may be tested in the coming months with MyCareer moving to free listings in order to combat declining online traffic.

Educational services are offered to Seek’s database of job hunters as a way of improving employment prospects. In the first half of FY 2013 revenue for the education side of the business increased by 12%, with earnings increasing by an amazing 108%. It appears that this side of the business can be grown strongly in the current environment of higher unemployment and a more competitive job market.

The third revenue stream, international investments, has also experienced strong growth on the back of strong employment demand in emerging markets. Seek has exposure to job websites in China, Brazil, Indonesia, Mexico, Malaysia, Singapore, Thailand, Hong Kong and the Philippines. Division earnings increased from 11 to 17% of group earnings in the first half of 2013, with expectations of further improvement on the back of particularly strong growth in China. China is the only of the above regions in which Seek does not have exposure to the number one online job marketplace.

A risk worth noting is the entrance and increasing penetration of competitor LinkedIn (NYSE: LNKD). LinkedIn’s Talent Solutions job advertisement product reported an 80% increase in revenue in the first quarter of 2013. If it continues to increase revenue at an appreciable rate, Seek may see declining domestic market share. The key benefit of LinkedIn’s product is the extensive data LinkedIn has of all of its members from their online ‘resumes’. This allows LinkedIn to send users highly targeted advertisements, regardless of whether they’re looking for a job.

Foolish takeaway

Seek has expanded beyond its traditional domestic job advertisement business with great success thus far. The stock price rallied hard in early 2013 and has pulled back with the overall market, presenting a buying opportunity for medium-term investors. If Seek can continue to grow market share and earnings in its education offering and international investments, it will go a long way to strong share price growth in coming months and years.

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Motley Fool contributor Andrew Mudie does not own shares of any companies mentioned here.

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