Can the Trade Me Group Ltd share price rise further from here?

Trade Me Group Ltd (ASX: TME) is New Zealand’s answer to Ebay, Ltd (ASX: CAR), REA Group Ltd (ASX: REA) and Seek Limited (ASX: SEK) all rolled into one.

The group offers classifieds for everything from personal goods to cars and houses, as well as jobs, insurance and holiday houses.

The company’s rise in New Zealand was nothing short of phenomenal, but in recent years, the company has struggled to grow – limited by its dominance of the small (comparatively) New Zealand market.

That is reflected in the 9% increase in revenues to NZ$105.6 million for the six months to end of December 2015, and the 0.3% increase in net profit to NZ$38.5 million. Net profit has been relatively flat over the past five years.

But in a recent presentation, the company says it is now curtailing its heavy spend on expenses – with staff doubling from December 2012, marketing expenses more than tripling and substantial portions of its platform have been redeveloped.

Trade Me financials

Source; Trade Me presentation

Should Trade Me be able to grow revenues at a decent clip – like it has over the past five years – then shareholders should start to see more drop through to the bottom line, and profits and earnings grow.

Recent trends in merchandise sales have increased – after falling in 2014 and early 2015 –  and revenues appear to be growing nicely in Property and Motors.

Foolish takeaway

Trade Me should be able to grow earnings nicely from here, which may see the share price add to the 10% gain so far this year.

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Motley Fool writer/analyst Mike King owns shares in Seek Limited. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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