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Is Seek a buy?

Australia’s leading online employment website operator, Seek (ASX: SEK), is poised for growth in coming years if its overseas investments take off and the Australian economy strengthens. Seek maintains three revenue sources: Australian domestic employment advertising through seek.com.au, education services, and investments in market leading international job websites.

There is little room for growth for Seek in Australia as  it currently captures over 80% of all Australian online job search time, dominating competitors CareerOne (owned by News Corporation (ASX: NWS)) and MyCareer (owned by Fairfax (ASX: FXJ)). There is potential downside for Seek in Australia if the economy stagnates, unemployment increases, and job advertisement volume decreases. To offset any loss of advertisement revenue, Seek connects job seekers with education providers (for a fee), a business may benefit from more Australians searching for work in a high-unemployment environment.

The main driver of growth in the coming years will be from the company’s exposure to the growing Latin American and Asian markets. These markets, unlike Australia, have low internet penetration and online advertising has huge room to grow. SEEK has exposure to China, Brazil, Indonesia, Mexico, Malaysia, Singapore, Thailand, Hong Kong and the Philippines through investments in online job marketplaces. This gives the company exposure to many of the world’s largest and fastest growing populations, as well as those with strongly growing economies which will hopefully lead to strong employment advertising.

The main threat to Seek is expected to come from the US-based LinkedIn (NYSE: LNKD). LinkedIn is a work orientated social networking site which operates an integrated job search business called Talent Solutions. Talent Solutions sends LinkedIn users alerts of recently posted jobs in their field of expertise and desired location, however the company has noted that most users do not currently interact with the site as their primary method of job seeking.

LinkedIn has seen exponential growth in users, up 100 million in the past year and a half, but has thus far had little impact on Seek’s Australian market share. Depending on the strategy of the company, a dedicated marketing blitz targeting Australian job seekers may see some Seek market share lost in the near team, however this is considered unlikely by most brokers who are forecasting strong earnings growth.

Foolish takeaway

Seek has been a strong performer for a number of years and the company is taking smart steps to diversify its earnings streams in the wake of a weakening Australian economy. If the company’s investments in Asian and Latin America succeed it will see the company generate quickly growing profits. Any pullback in the company’s share price may represent a buying opportunity for investors searching for growth.

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Motley Fool contributor Andrew Mudie does not own shares of any companies mentioned in this article.

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