Here’s why tech share Trade Me Group Ltd is soaring today

Although not widely followed, in my opinion New Zealand-based tech company Trade Me Group Ltd (ASX: TME) is one of the most interesting shares on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

After starting off life as an online auction website, it has grown into an incredibly diverse marketplace with an enviably strong market position.

In many respects the company is New Zealand’s answer to eBay, REA Group Ltd (ASX: REA), Ltd (ASX: CAR), Seek Limited (ASX: SEK), Webjet Limited (ASX: WEB), and iSelect Ltd (ASX: ISU), but all under the same roof.

Today the company released its full year results and although profits were down, the market has seen enough in them to send its share price surging higher.

Despite Trade Me delivering revenue growth of 9.2% to NZ$218 million, net profit dropped 6.5% to NZ$74.9 million to total 18.9 cents per share. But this was largely expected to be the case, as Trade Me has been investing heavily in its operations.

But with the investment phase reaching completion and the business building momentum, management has indicated that it expects the company to return to profit growth in the near-term. This would have been the case this year had it not been for a one-off impairment charge. Excluding that charge would have meant underlying profit was up 3.5% year on year to NZ$83 million.

Although all segments grew year on year, it was once again the Classifieds segment that was the biggest driver of revenue growth. Being its largest segment by some distance this is great to see. Segment revenue increased 13.2% to NZ$112.8 million thanks to the company’s focus on premium revenue generation and product enhancements.

For FY 2017 management expects total revenue to grow at a similar rate, but expenses to drop off considerably. This it believes will allow it to deliver year-on-year earnings growth rates in excess of FY 2016.

This all sounds very promising and I trust management to deliver on its promises. At 28x full year earnings its shares are trading at a slight discount to industry peers and SEEK. This could possibly make it an opportune time to open a position in the growing company.

Finally, before making an investment I would highly recommend taking a moment to see if you own either of these three wealth-destroying shares.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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