Trade Me earnings growth may slow to about 8 percent in 2014, from 12 percent in 2013, Macdonald says

Thursday 5th September 2013

Trade Me Group's earnings growth may to slow to about 8 percent in the coming year as New Zealand's largest online auction site reinvests in its business, from a 12 percent pace last year, before picking up again in 2015 as its investments pay off.

Trade Me chief executive Jon Macdonald said he is comfortable with analyst estimates in a Reuters poll for earnings before interest, tax, depreciation and amortisation to rise 8.2 percent in the 2014 financial year, and accelerate to an 11 percent pace in 2015.

Trade Me was the biggest disappointment in New Zealand's 2013 reporting season, based on its stock price reaction, after it warned earnings growth would slow in the coming year as it bolstered its business to drive future profits. The company's shares have slid almost 4 percent since it reported earnings on Aug. 21, and the stock is the third worst performer on New Zealand's benchmark index the past month, having slid 8 percent. The stock was recently up 2 percent to $4.52.

"Fundamentally we are still very much a growth company," Macdonald told BusinessDesk. "There's an enormous amount of headroom that we have."

Macdonald said he was confident about long-term growth opportunities for companies which had similar businesses such as online auction site eBay. Trade Me expects to benefit from adding new categories to its offering and as more services migrate online, he said.

Last month, Trade Me bought online insurance comparison business LifeDirect, adding to its purchase of inventory management company Tradevine and holiday rental accommodation website Holiday Homes in the past year.

The company is actively looking for suitable acquisitions and will continue to add businesses that fit its model as well as develop its own categories, Macdonald said.

In the current financial year, expenses are set to rise "materially" as the company adds workers and spends more on marketing, Macdonald said. Expenses rose 14 percent in the past year to $41 million.

Trade Me expects to add as many 50 new staff, on top of the 11 it will gain from LifeDirect. That could add $4.6 million to last year's $21 million employee bill, based on the 2013 average earnings of $76,000 for the company's 279 staff.

Marketing expenses in the current year will probably rise by 50 percent from $2.75 million in 2013 as the company plans its biggest ever marketing campaign to promote its general items marketplace ahead of Christmas, Macdonald said.

In the current year, Trade Me is bolstering its general items auction team, which posted sluggish revenue growth of 4.9 percent in 2013, and its mobile team to develop applications for future growth.

The company is in talks with the country's large real estate franchises in an attempt to grab a bigger share of marketing spending on house sales and better reflect the value of listing online, Macdonald said.

Trade Me wants to stop charging agents a subscription fee and move instead to a one-time fee per property of $100 to $200, which would be passed on to sellers, he said. Total marketing costs of $1,500 to $2,000 may come down over time as vendors see the value in online marketing and Trade Me takes market share from newspapers, he said.

The transition may take a couple of years as existing agreements are phased out, he said.

BusinessDesk.co.nz

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