Jack of all trades
Trade Me (ASX: TME) is one result from reporting season that caught our attention. What did we find upon further analysis?
Trade Me is a New Zealand website group that provides classified advertising for a range of products, such as general merchandise, jobs, property and motor vehicles.
We have written extensively about “virtuous circles”, which is when a service becomes more valuable the more people use it. Websites are particularly attractive investments because of this phenomenon, but in this instance we feel that Trade Me’s diverse product suite may hurt the long term prospects of the company.
You see, Trade Me is in competition with a range of companies that are more specialised and have greater resources.
Consumers do not get the same benefit from centrally-located virtual products as they do from centrally located physical products (like supermarkets or big-box warehouses). The key reason a customer uses a website is to find the right product at the best price. So while the major players direct all their resources to do this for just one discipline, Trade Me must allocate its capital across the group to deliver a superior product in each field.
We consider that without a specialised focus, or significant scale, the company is at risk of being swamped by the major players.
Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Lissica
:
Ebay has already tried to enter NZ without success. Trademe is the incumbent.
I find Trademe arrogant and overpriced, but I still have to use their services, so to me that suggests they have a genuine competitive advantage. I despise their dating site (Findsomeone), but I found my long term partner on it, so it’s not all bad :)
Realestate.co.nz is industry run, but probably their main competitor. I don’t know anyone that uses it- the listings are all on Trademe.
Roger Montgomery
:
Interesting Lissica. Thank you.
Charlie Dalziell
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They compete with SEK in jobs but not REA nor CAR
The realestate.com.nz competitor is completely unrelated to REA and I don’t think CAR owns Autotrader.
Ben MacNevin
:
You are correct Charlie, my mistake. Thank you for the update.
Lissica
:
Except that Trademe has a dominant position NZ.
We’re currently house hunting, and Trademe is the only site we use (and they also offer private listings). We don’t bother with realestate.co.nz, which has duplicate information.
Likewise when advertising for tenants at our rentals- we didn’t even think there are other options.
Chris
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“Jack of all trades”…and master of none ?
Do one thing and do it exceptionally well. If you try to be “everything to everyone”, you will come a cropper.
John E
:
Being confined to a low growth NZ market, there isn’t really the scope for them to be high growth.
They are the eBay of NZ. I remember reading 10yrs or so ago that eBay weren’t interested much in focussing on NZ. However many kiwis still use eBay Aust. And there is always the threat of an eBay moving in eventually and they have the scale to submerge competitors. .
Ed Dent
:
Contention sounds fine on paper, but I don’t think you have really considered the deeply entrenched nature of the brand in NZ. I would agree that Seek, REAS have deeper expertise – but I’d love to hear some theories on how they would use that expertise to displace Trade Me. The only levers I can think of is price, and website functionality. It certainly won’t be range of products given Trade Me’s market share.