The SEEK Limited (ASX: SEK) share price dropped 2% today even though the online jobs business lifted its full year EBITDA (operating income) guidance from growth of around 10% to 13%.
SEEK's results and forecasts are complicated by management's insistence on backing out certain investment costs, with it reporting EBITDA of $362.2 million in FY 2017. Based on today's update it now expects EBITDA to lift around $48 million in fiscal 2018 compared to prior forecasts of an approximate $36.2 million lift.
However, the market is unimpressed and has sold off a stock that has been on a hot run in anticipation of an even stronger trading update for a business leveraged to the economic cycle.
The blemishes are that SEEK flagged higher interest costs associated with the debt around its recent Zhaopin.com privatisation, while net profit is expected to also be hit by higher share-based payment expenses, depreciation, and amortisation.
Revenue growth is still expected to come in at 20%-25% and given the flat profits due to heavy reinvestment in the business it appears SEEK is taking a leaf of the Amazon Inc playbook when it comes to growing long-term value.
As with Amazon the heavy reinvestments are largely about new market share, or defending and increasing the competitive position of its dozens of online operations worldwide.
Given its lack of profit growth, I'm not surprised to see SEEK shares sold off today, as the market is generally focused no further than the next 6-18 months of dividends and profits. As such any significant price pullback to under $17.20 would be a buying opportunity in my opinion.
