Little growth seen in Trade Me 'fortress'

TOM PULLAR-STRECKER
Last updated 16:33 19/08/2014

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Trade Me is expected to post a near flat annual profit tomorrow after a year that saw it come off second-best in a bruising encounter with the real estate industry.

Craigs Investment Partners analyst Stephen Ridgewell forecast Trade Me would post a net profit of $80 million, little changed on last year's $78.6m profit, on revenues of $183m, and would provide relatively "soft" guidance for the year ahead.

Forsyth Barr analyst Blair Galpin was more downbeat forecasting a lower net profit of $75m on revenues of $180m, having taken a "more conservative view" at the bottom end of Trade Me's guidance.

Trade Me was forced to back down in its attempt to switch real estate agents to a new pay-per-listing fee structure last month after agents began switching their advertisements to rival industry-owned website realestate.co.nz.

There has been speculation the defeat could encourage car dealers to follow suit and seek to reduce their reliance on Trade Me, but both Ridgewell and Galpin believed that was unlikely.

Despite the real estate agent battle, Ridgewell expected Trade Me Property would increase its annual revenue from $23.3m to about $26.5m.

Galpin said it was hard to quantify the likely impact of discounts that Trade Me had offered large agents to retain their business while it was seeking to impose the new fee structure.

"It is difficult to pick where the result is going to land given that turbulence," he said.

Ridgewell said Trade Me already appeared to have won back a bit of the market share it had lost to realestate.co.nz, since its climbdown.

"At its low point it had 83.8 per cent of the listings of realestate.co.nz and over the past couple of weeks it has picked up to 84.1 per cent. We feel Trade Me will recover some of its lost market share over the coming year.

"The agents have a degree of market power which has been tested over the last 12 months and the agents have come out on top. The motor industry is very diversified and private listings are much more important. Autotrader, which is the only alternative to Trade Me, has one thirteenth of the viewership of Trade Me and only half the listings," he said.

"People forget Trade Me is good value in its space."

Ridgewell forecast Trade Me would report a drop in revenue from its "general items" business which includes its traditional fortress; consumer-listings of second-hand items for auction.

Rival Wheedle, which had been targeting that business, gave up and cut its losses last month.

However, Ridgewell said it viewed Trade Me's general items business as mature and Craigs was not predicting any future growth in that business.

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Galpin said analysts would be looking to see whether Trade Me had been making progress encouraging companies to sell new goods through its site, but he expected that to take time.

"It is being pushed a lot but we are not expecting a lot of extra profit from that this year. What we are looking for is when we can start to expect that; hopefully in the second half of next year."

Trade Me shares were trading up 1.7 per cent at $3.52 in late afternoon trading, still well down on their 12-month high of $4.69. 

- Stuff

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