Trade Me told to focus on new goods

TOM PULLAR-STRECKER
Last updated 13:35 20/02/2013
TME 3.640 0.03 0.83%
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Trade Me shares have slipped after the company revealed the number of "general items" sold through its core marketplace had fallen 3.8 per cent and retailers were slow to sell new goods through its website.

The company again outshone the revenue and profit forecasts originally set out in its 2011 prospectus thanks mainly to strong growth in other parts of the business, reporting a 3 per cent increase in its interim net profit to $37.4 million on the back of an 18 per cent jump in revenues to $80.4m.

Revenues from the sale of general items rose 7.5 per cent, but Deutsche Bank analyst Arie Dekker said it was "a little concerning" that had mainly been because of an October fee hike. The actual value of general items traded rose 1.1 per cent as the average value of trades also increased.

"Unless they can be successful in getting new goods retailers on, we will see that 'maturity' flow through into future results," Dekker said. 

The result was helped by Trade Me for the first time recognising revenues from fees due from members whose accounts had fallen into debit, resulting in a one-off $800,000 boost. 

Trade Me shares were down 3.4 per cent to $4.26 during lunchtime trading. But Dekker said that had to be seen in the context of a good run before today's result.

Encouragingly, Trade Me's property, jobs and vehicle sales businesses were now contributing as much revenue as general items - $33.1m during the interim period - and growing at 25 to 30 per cent, he said. 

The company said it had achieved the final set of revenue and profit targets set out in its 2011 prospectus, and announced a 7.5 cent interim dividend - half a cent higher than originally forecast.

Earnings before interest, tax depreciation and amortisation (Ebitda) rose 14 per cent to $59.2m.

Chairman David Kirk said the results were pleasing, and marked the end of another successful chapter in Trade Me's history.  

"We're continuing to grow strongly with a double-digit lift in both revenue and Ebitda, and we're proud to have delivered on the commitments we made to investors at IPO time," he said.

"With Fairfax selling down its 51 per cent stake in Trade Me before Christmas and our inclusion in the NZX 10 Index this week, we have well and truly completed our transition to life as a public company."

The company said net profit rose at a lower rate than Ebitda because of the change in Trade Me's capital structure and debt profile following its sharemarket float. 

That resulted in an increase in finance costs from $332,000 in the second half of 2011 to $3.9m in the second half of 2012, the period covered by the interim result.

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However, net profit was 7 per cent ahead of its prospectus forecast, while revenues were 5 per cent ahead of forecast. 

Trade Me's expenses were 1 per cent ahead of forecast. Trade Me now has 300 staff, up from 230 a year ago.

Chief executive Jon Macdonald said there had been "varied levels of revenue strength" across Trade Me's business but "nothing out of the ordinary".

"Our core 'general items' marketplace performed in line with our expectations," Macdonald said.

A third of visits to Trade Me were now using mobile devices such as smartphones.  

"Throughout the year, we've also seen the proportion of fixed-price transactions continue to grow as more buyers seek an instant e-commerce experience," he said.

Macdonald said its classifieds businesses, which comprises Trade Me Motors, Trade Me Property, and Trade Me Jobs, delivered a strong performance during the half-year and that looked set to continue through 2013.   

"There are several factors at play here, including the return of some market stability, and encouraging uptake for our new premium promotional products," he said.

Revenues from advertising fell short of expectations as the migration of spending towards online channels was tempered by offshore publishers gaining market share, he said.  

Daily deal site Treat Me also came in "below our bullish forecast".

"We believe group-buying still has potential, but remains a young and uncertain industry in New Zealand," Macdonald said.

Dating site FindSomeone turned in an "excellent performance".

Macdonald said there was optimism about Trade Me's prospects.  

"In the short term, we believe the New Zealand economy remains subdued but settled, and is taking some strength from the Christchurch rebuild and the Auckland property market," he said.

"In the longer term, we're confident about the company and its strong foundations.  

"Ongoing growth in mobile, the introduction of additional products across our classifieds businesses, the migration of advertising yield online, and the long-term opportunity in e-commerce, all provide sizeable opportunities."

- BusinessDay.co.nz

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