Stocks We Like – SEEK
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Joe Rich
:
Hi Stuart,
Great article! A few quick questions: (1) you write that “the primary opportunity for both companies (Seek and LinkedIn) will be in displacing the traditional players in the market for many years before having to worry about one another.” By ‘traditional players’ are you referring mainly to the added threat to traditional recruiters? Or, rather than directly threatening recruiters do you see both these companies competing with each other to actually partner with recruiters (i.e. the search engine partnership with Hay’s)?
(2) How do you see SEK’s historically high current price in relation to your estimate of intrinsic value?
Stuart Jackson
:
Hi Joe,
There are a number of ways that both SEEK and LinkedIn will increase their overall share of the revenue pool in the employment market. Both companies can provide value added services to existing recruiters, making their processes more efficient and cutting costs through the use of scalable technology and increased automation. This effectively drives revenue growth for SEEK and LinkedIn as a replacement of the existing operating costs of the traditional players in the market (ie recruiters). The Hays Recruitment deal is an example of this. The second way is through improvements in the front end product offering, providing companies with easier to use products that allow them to insource more of their recruitment needs. This will result in these companies increasing their share of overall recruitment market revenue. The upgrade of SEEK’s SME interface is an example of the sot of investment being undertaken by SEEK in pursuit of this opportunity as is its investment in matching and company review products.
In terms of the current share price, while it has increased significantly over the last 6 months, we believe it remains attractive on a risk/return basis given its market position and its prospects given the opportunities for new product development and continued growth in the penetration of its products both domestically and overseas.