Trade Me Group Ltd share price falls as it flags more reinvestment

Trade Me Group Ltd (ASX:TME) is facing big competition from Facebook's marketplace among others.

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Shares in New Zealand-based online advertising and marketplace business Trade Me Group Ltd (ASX: TME) are down 7% in trade today even though the group posted a record result and some impressive double-digit growth over FY2017.

In total net profit was up 25.9% to NZ$94.4 million on revenue of NZ$234.9 million, which itself was up 7%. Earnings per share clocked in at NZ 23.76 cents, up 25.9%, while a final dividend of NZ 10 cents per share was also declared.

Weighing down the share price is management's forecast for another year of heavy investment over FY2018 with it warning investment growth is set to outpace revenue growth over the year ahead. Despite this disappointment it does expect to deliver full year revenue and EBITDA growth over FY2018.

The heavy investment in the business is the result of rising competition from the likes of Facebook's marketplace and other internet giants that threaten to disrupt the network effect and competitive advantage Trade Me has spent years building in New Zealand.

Trade Me's right to be worried and despite some of its attractive qualities, I expect today's ominous outlook could be just the start of things to come. Trade Me shares also change hands on quite a fruity valuation and as such I'm not a buyer.

Motley Fool contributor Tom Richardson owns shares in Facebook. You can find Tom on Twitter @tommyr345 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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