Job search website company SEEK Limited (ASX: SEK) released fantastic first-half results in February, with a 29% gain in underlying net profit on the previous corresponding period. It sent the stock up to an early March high of $18.54. However, since then it is around 9% down while the S&P ASX 200 Index (ASX: ^XJO) gained about 1.5%.
There will always be a short-term reaction to such good news, but I believe holding onto the shares is still a good choice. Here are the reasons that make me think this way.
1) Market leader
As the number one job search website, it attracts the most viewers and has developed a strong market niche. Some competitors are businesses from traditional print media, like newspaper company Fairfax Media Limited (ASX: FXJ), that are transitioning to digital. Others are "evolving" in the industry, but will require a lot of time and money to develop to Seek's level.
2) Power of advertising
One of the kinds of businesses that famous investor Warren Buffett likes is advertising because it can have strong control over a region, such as a newspaper or TV station. Other businesses see the leading company as the "go-to" company to advertise with. Viewers also see the company as the best source of information or deals. That can give Seek a protective barrier against other jobs websites.
3) International growth
Seek is capitalising on its expertise overseas through its Seek Asia subsidiary that has business throughout South East Asia, like in Malaysia and Singapore.
It owns the biggest Hong Kong jobs website, JobsDB, which operates in seven Asian countries. It fully acquired Malaysia-based JobStreet.com earlier this year, consolidating its regional presence.
Beyond that, Seek is the majority shareholder of China's biggest jobs website, Zhaopin. It is preparing it for listing on the New York Stock Exchange. The IPO is expected to raise up to US$100 million, but even after the listing, Seek intends to hold a controlling stake in the company of about 67%. It still sees the growth potential in China and wants to make sure it is a main player there.
Seek's share price could possibly pull back more after such a wide jump in price from February. That also can be short-term, so long-term investors could add to their positions if prices weaken. The growth model is in place and expanding into the world's most heavily populated region.
