Kiwis love Trade Me, a business that fits our psyche
Kiwis and Germans have something in common: we lead the world in buying and selling stuff on internet trading platforms.
In reality we Kiwis are probably the keener dealers; it is difficult to imagine a Bavarian bothering to list anything for a single euro or dollar, the starting price for many items on Trade Me. Or bidding fiercely, and paying silly money, for some of the wacky things that turn up there.
One wonders if Sam Morgan, the Trade Me founder, appreciated that his countrymen were such inveterate bargain hunters when he set up the company in March 1999. I'm told he should have suspected it: his mother Jo can't resist a good deal. As a child she took him with her bargain hunting at charity, second-hand stores and auctions, and she still shops there.
His fledging business has fitted the national psyche amazingly well. Today 660,000 Kiwis look at Trade Me every day, some spending hours searching for a bargain, an elusive collectible, a house or a car. In April 7m people looked at the Trade Me site, spending an average 18 minutes there a time.
Up to 40,000 items, at an average price of $50, are sold each day, worth $2m. Millions more are spent on vehicles and houses.
It seems Aussie institutional investors also love a bargain. While the buyers of last week's sell-down by Fairfax of a further 15 per cent stake haven't been identified, it is rumoured that Aussie institutions were at the forefront after broker UBS got the mandate to sell the stock, selling at A$2.70 a share. Last November the first tranche of shares was sold at NZ$2.70; after currency conversion the latest lot fetched the equivalent of NZ$3.46, a 10 cent discount on the then market price. It was $3.66 on Friday.
While some Aussie analysts continue to argue the stock is fundamentally overpriced, others disagree. Their equivalent – Ebay Australia – is not listed there nor is it as profitable. In 2006 then Fairfax chief executive David Kirk took a lot of flak for paying NZ$700m for the company; it eventually cost $750m after it met financial targets. Mr Kirk now chairs Trade Me. His purchase had been vindicated with the other parts of the Fairfax newspaper empire struggling with declining advertising sales as people move to the digital age and online trading, Trade Me's lifeblood.
Widespread publicity last week about Fairfax's publishing problems, and the surge in the Trade Me share price over the past six months to a high of $4.09, before the latest bout of market jitters, seems to have whetted institutional buying interest.
Last year many Aussies missed out. In the pre-float auction that set the issue price their buying interest pushed the price to NZ$2.70, 40 cents more than expected. Given the substantial volume of Trade Me shares sold since then, I wonder how many shares originally sold here remain in Kiwi hands.
Local traders who had completed 500 trades got special allocations of shares in the float. Few such people would have been long term holders; most would have sold profitably months ago.
Given the speed with which Fairfax has cut its stake to 51 per cent, there is inevitable speculation it won't stop there, though this will draw criticism about it quitting the only growth part of its business, as Trade Me has a key role in classified advertising in this country and is at the forefront of the new digital media age. It is also expanding aggressively. Its recent tie-up with Australian based Channel Adviser means it will offer, according to a statement, "an increased range of global brands" by Christmas, creating further problems for rival bricks-and-mortar stores. In May it bought control of Autobase, which manages its relationship with 1000 vehicle dealers.
Fairfax says it doesn't intend to sell more shares. However, given its financial stresses and the expectations that Perth billionaire Gina Rinehart intends to flex her muscle after buying 18 per cent, anything could happen.
There is inevitable disappointment that the 15 per cent wasn't sold as a rights issue to allow smaller Kiwi shareholders to increase their holdings. Unfortunately companies are increasingly selling sizeable parcels of shares directly to institutions or wealthy investors. Those lucky enough to get these offers can make windfall gains, frequently reselling on the market at the first opportunity.
From a company's perspective, selling shares this way makes sense. They get the money quickly without waiting for the time-consuming, costly business of arranging a cash issue, while avoiding the high costs of a prospectus and steep legal expenses in meeting compliance requirements.
Trade Me really has turned out to be Fairfax's jewel: in the past six or so months it has effectively recouped its NZ$750m price tag. It raised A$364m in the first sale, $190m last week, a total A$524m. Immediately before the float it took a $220m dividend while borrowing a further $190m.