One of the ASX's potentially best growth businesses in jobs marketplace SEEK Limited (ASX: SEK) boasted that adverts across its core Australian operations grew 16.1% year-on-year over the month of October.
Job adverts across the mining, energy and resources sector climbed for the tenth month in a row and are up a robust 59% year-on-year.
SEEK's fee-earning model still largely works by charging employers or professional recruiters fixed or variable fees to post adverts seeking employees.
As such the 16% lift in annual growth bodes well for some strong revenue growth for the six-month period ending December 31 2017 and beyond.
In fact SEEK is quite a cyclical business (more so than its peers REA Group Limited (ASX: REA) and Carsales.Com Ltd (ASX: CAR)) in that the number of job postings advertised with it is heavily dependent on local macro-economic conditions.
In other words if gross domestic product is growing at healthy rates so should job postings with Australia's mining sector a good micro-cosmic example of this effect. When capital is being investing into mining on the back of stronger commodity prices then there's a natural demand for far more employees. Whereas in times of a recession or a mining bust then the opposite effect occurs with redundancies more likely and job adverts plunging.
The group's biggest sector is "trades and services" where job postings climbed 34%, with hospitality also up 29% and the strength of SEEK's business outside the blue-collar office jobs sector is what should help insulate it from the competitive threat provide posed by U.S. social network LinkedIn.
SEEK is also a truly global business now with around half of revenues and profits generated from outside Australia. It has core overseas operations in fast-growing regions like Brazil, Mexico and South East Asia.
However, the jewel in its crown is probably its Zhaopin.com Chinese jobs board that has grown revenues at more than 20% per year to become a top player in the giant Chinese jobs market. The impressive top-line growth has come about partly as the result of some heavy reinvestment in the business that has whacked Zhaopin's profit growth for now.
However, I suspect that over time Zhaopin will lift its EBITDA margins and profits at serious rates once the period of heavy reinvestment subsides.
Outlook
Given the growth in job postings it seems SEEK will deliver on its own forecasts of 20%-25% top-line growth over FY 2018 and quite possibly beat these forecasts.
However, it is the heavy reinvestment in the business that is currently hurting profit growth as SEEK continues to invest in technology and defending its market position. The group is currently forecasting EBITDA growth of 10% in FY 2018 and net profit in the range of $220 million to $230 million before significant amounts of investment in new ventures.
Recently, the share price has responded to the positive economic data, with management potentially providing a trading update at its November 29 AGM. For now I would rate it as a hold at $19 on valuation grounds, although if it gets 5% cheaper I would again be a buyer.
