Low costs. High margins. A (relatively) easy-to-scale business model. There’s a lot to like about many internet-based businesses.
With the recent market slide – including a 2% fall in the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) already today — some of Australia’s best known web businesses are trading for more reasonable valuations.
For instance, despite little significant news, shares of Wotif.com Holdings (ASX: WTF) and Seek Limited (ASX: SEK) are down by nearly 13% and 17% respectively in the last 30 days. Here’s why it may be time to stick these two internet stocks on your watch list.
Idea #1: Wotif.com Holdings
Wotif.com Holdings runs one of the country’s most popular hotel booking sites, Wotif.com, selling one in ten hotel nights Australia-wide. The company also operates a number of other travel-related sites. Sales grew from $89 million in 2008 to $139.7 million in 2012, and with net income margins coming in around the 40% mark, much of this revenue falls directly to the bottom line.
Future growth should depend in part on the company capturing additional market share domestically and in Asian bookings – a prospect worth watching. Currently trading for a little more than 17 times trailing earnings, Wotif.com shares pay a fully franked dividend with a yield over 5%.
Seek operates not just Seek.com, Australia’s dominant employment site, but a host of other related businesses spanning the globe, from China to Brazil. Most recently – that is to say, today – Seek announced plans to acquire a 25% stake in One Africa Media, an online classifieds business.
“Africa presents a strategic opportunity to benefit from the significant long-term growth opportunities for online classifieds businesses. Internet and mobile penetration are growing rapidly and key economies within the region are experiencing substantial increases in GDP”, said Jason Lenga, managing director of Seek International, in a press release.
Seek shares are trading for about 22 times trailing earnings, and pay a fully franked dividend over 2%. Should the price dip lower, this growing company could move into buy territory.
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Motley Fool contributor Catherine Baab-Muguira does not own any shares in the companies mentioned in this article.