On Thursday morning, Seek (ASX: SEK) announced that it had invested US$20 million in a 25% stake of One Africa Media (OAM). This is yet another waypoint on the company’s path to becoming one of the biggest truly multinational digital companies to come out of Australia (and trade on the ASX).
The purchase of the initial stake in OAM follows the acquisition, earlier in 2013, of the remaining 20% of JobsDB, which operates throughout the Asia-Pacific, and the accumulation of a further 22.7% of China-based Zhaopin, of which Seek now owns 78.2%.
One Africa Media owns online marketplaces for Cars, Real Estate and Travel services, in addition to employment websites for Nigeria and Kenya. They purchase, therefore is a foray into slightly different businesses, as well as a new geographic region.
Seek now owns or partially owns businesses in Africa, Southeast Asia, China, Brazil, Mexico, New Zealand and Australia. In all cases, its businesses hold either the largest or second largest market share. Solid growth is expected for years to come in the international businesses, partly because in places like Brazil and China, less than 50% of the population regularly use the internet, compared to about 90% in Australia and New Zealand. Seek’s success has been built on taking market share from print media and being able to do so at lower cost. In countries where internet usage is growing, so too is the number of potential users of the company’s websites.
Internet companies operate in an industry subject to a high rate of change… remember MySpace? It is oft considered that LinkedIn (NYSE: LNKD) poses a threat to Seek’s business model, but I think the threat may be overestimated. Some job advertisements, such as those published by government, must be publicly available, but not everybody is a member of LinkedIn.
Further, Seek is already dominant in certain markets, and the dominant player in such businesses is very hard to unseat. Seek has more page-views and more advertisers than LinkedIn, so using its site is a no-brainer for job seekers and advertisers alike. Do you really think that in the future the only way to search for jobs online will be to join LinkedIn?
The bigger threat, to my mind, is that Seek will get into trouble in markets where it is not the dominant player. For example, its Chinese business, Zhaopin, is playing second fiddle to the more popular platform of rival 51job (Nasdaq: JOBS). However, at this stage, there is plenty of room for both websites to grow users, and it will be some time before we know how that will play out.
It’s also worth noting the launch of Wei Renmai, China’s answer to LinkedIn. Because Seek is not dominant in that market, this could become more of a threat to their business than LinkedIn is.
Seek’s educational services division is growing earnings strongly. Having the dominant online marketplace for jobs is a great platform for selling online education, and if this is a business model it can perfect, it could be a source of earnings growth both domestically and overseas. By staking out market share in emerging markets, management may succeed in building a truly multinational company for the digital age.
Seek is in a class of its own on the ASX. At the moment, the domestic jobs website dominates the company’s earnings, but this is changing. The company is expanding into new geographic markets and new types of online markets (be they for education, cars or travel). Put this stock on your watchlist; the share price is sensitive to the job market and investor sentiment, but the long-term prospects are impressive.
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Motley Fool contributor Claude Walker does not own shares in any of the companies mentioned in this article.