There is no denying SEEK Limited (ASX: SEK) and Carsales.Com Ltd (ASX: CAR) are good businesses and have proven to be great investments.
However, they must be nimble to deal with one enormous risk heading their way.
Why I'm uber bearish on Seek Limited and Carsales.Com Ltd
This seemingly obvious risk may be nothing new to you, but it should at least prompt you to think about the future of both companies.
Remember, being critical of an investment thesis is something all good investors do often. But it is especially important for investments in companies that rely on innovation, like those from the tech industry.
In my opinion, the single biggest threat to SEEK and Carsales is social media. Anyone who uses Facebook (let's be honest, who doesn't?) should have noticed some of its recent product releases. The most pressing is the Facebook Marketplace, which was launched on October 3rd, 2016. Its Facebook's equivalent of eBay or Gumtree — but with one massive difference.
In 2012, Facebook accounted for 20% (that's ⅕ if you like fractions) of all website visits in the United States, according to Zephoria. That was 2012. In 2016, Facebook had 1.8 billion (with a 'b') active monthly users.
But that's not the only difference between Facebook and the likes of SEEK, Carsales, eBay, Gumtree and even Google's YouTube. One key difference is the communication channel. With 1.8 billion active monthly users, Facebook already has the largest network. What's more, Facebook users do not need to 'search' the Internet for new cars (and, potentially, new jobs) — they appear in the in-built marketplace or on their 'feed'. It's also free.
Of course, one feature Carsales has had over Gumtree is its reputation as the best marketplace for new and used cars. However, Facebook is arguably the most trusted website ever created. After all, how many other websites do 1.8 billion users put their date of birth, address, marital status and credit card information?
Foolish Takeaway
I don't think Facebook is an imminent threat to Carsales and SEEK's share price, but its status as the best social network ever created makes it the single biggest threat to ordinary listing sites just like these two.
For a scuttlebutt, I recently listed my car for sale on Facebook, Gumtree and Carsales. I found that Gumtree generated more impressions in the first week than Carsales but Facebook had the most immediate impact of all three — and this was before Marketplace rolled out in Australia. Weeks later however, Carsales continues to generate the most 'reliable' leads.
Nonetheless, in the next 10 years, I think it is very possible we will see Facebook as the leading company for all types of listings, including cars, real estate and employment. For that reason, I will not pay the current price to buy shares in Carsales and SEEK.
