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Is the Seek share price a long-term buy?

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The SEEK Limited (ASX: SEK) share price could be a long-term buy at today’s price.

Shares in Seek have been hammered in early trade after the company reported its results for FY20 earlier today. Investors have been quick to dump their shares in the company, with the Seek share price trading more than 9% lower at the time of writing, after hitting an intra-day low of $18.51 earlier today.

Despite the negative price action, I think shares in Seek could be a long-term buy as the online employment group recovers from the COVID-19 pandemic.

How has the pandemic impacted Seek?

In its full-year report, Seek cited weak macro-economic conditions and the COVID-19 pandemic as contributing factors to the result.

Despite reporting a 3% increase in revenue of $1.577 billion, Seek announced a heavy net loss of $111.7 million for FY20 compared to a net profit after tax of $180.3 million a year ago. The company also reported a 9% dip in full-year earnings with earnings before interest, taxes, depreciation and amortisation of $414.9 million for FY20.

The company’s management cited weaker economic conditions induced by the COVID-19 pandemic as a reason for weaker job listings. As a result, Seek was unable able to provide financial guidance for FY21 given the highly volatile nature of the global economic environment.  

Seek also cancelled its final year dividend last week in an attempt for the company to strengthen its balance sheet against the economic downturn.

What’s the long-term outlook for the Seek share price?

Despite the pessimistic short-term outlook, the Seek share price could be a long-term buy in my view.

Seek has always been focused on its long-term growth outlook and the company has benefitted as job ads transition from newspapers to online platforms. The company has an aspirational goal of $5 billion in annual revenue by 2025, however Seek has acknowledged that the COVID-19 pandemic will impact this target.  

In its pursuit to generate growth, Seek has turned to offshore markets. A highlight from the company’s report today was the performance of its Zhaopin business in China, which reported a 12% increase in revenue on a constant currency basis.

Seek has cited the resilience and recovery of Zhaopin in the second half of FY20 as an example of recovery in other markets. As a result, Seek floated a possible scenario which could see the company achieve revenue of $1.47 billion and net profit of $20 million in FY21.

Should you buy shares in Seek?

In my opinion, there could be long-term value in buying Seek shares. The company has an interesting and proven growth profile, however much of the outlook depends on a recovery in economic conditions. 

At the time of writing, the Seek share price has bounced from its intra-day low and is trading more than 9% lower for the day.

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Returns as of 6th October 2020

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has recommended SEEK Limited. 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 Scott Phillips.

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