Trade Me result: Forward momentum continues to grow

Thursday, August 18, 2016 8:32 AM

Highlights

• Revenue up 9.2% YoY to $218.0m, with revenue growth returning to General Items marketplace
• EBITDA* up 4.5% YoY to $140.5m
• Net operating profit** up 3.5% YoY to $83.0m
• Net profit after tax of $74.9m
• Earnings per share for F16 was 18.87 cents
• Fully imputed final dividend of 9.0 cps to be paid on 20 Sept (full year dividend of 16.8 cps)
• Result is in line with guidance with a return to operating profit growth after period of sustained investment
• Positive momentum in core metrics

Online marketplace and classified advertising business Trade Me Group Ltd ('Trade Me') released its full year financial results for the 12 months to 30 June 2016 this morning.

Trade Me chairman David Kirk said the result was pleasing, and consistent with guidance provided over the past year. 'The result is in line with our expectations. Our investment phase is reaching completion and the business is building momentum, demonstrated by the return to profit growth overall and ongoing revenue growth in our General Items marketplace.'

Trade Me CEO Jon Macdonald said it was good to deliver on the plans laid out for investors. 'Since 2013, we've substantially strengthened the business by growing our staff numbers, bolstering our marketing efforts, making our products better and enhancing our sales capability. We're pleased to see these efforts reflected in the results today.'

The numbers

Mr Macdonald said Trade Me's revenue had increased to $218.0m, up 9.2 per cent on a year ago. The company's net profit after tax was down 6.5 per cent year-on-year to $74.9m, but excluding a one-off impairment charge, underlying profit was up 3.5 per cent year-on-year to $83.0m.

Earnings per share was 18.87 cents, with a fully imputed final dividend of 9.0 cents per share to be paid in September. In March, Trade Me paid investors an interim dividend of 7.8 cents per share.

Expense growth rates continue to decline, with year-on-year growth in the second half of the year of 17 per cent, down on the 25 per cent increase reported in F15. 'We've completed our period of significant growth in staff numbers,' Mr Macdonald said.

This year a one-off goodwill impairment charge of $8.1m was made in connection with FindSomeone, Trade Me's small online dating business. 'Over the last couple of years FindSomeone has come under pressure from international competitors which has seen financial performance decline,' Mr Macdonald said.

'Relative to our other businesses, FindSomeone lacks scalability and upside potential so we've diverted resources to the large opportunities within our core businesses.'

Performance by segment

In the General Items marketplace, revenue growth returned after two years - up 3.5 per cent year-on-year to $65.7m. Mr Macdonald said the consistent sales growth observed in the first half of the year had continued, and in the second half of F16 revenue in the segment increased by 7.0 per cent year-on-year. 'The key metric of gross merchandise sales has been heading in the right direction for the last 15 months in this business, which is great to see.'

Trade Me's Classifieds businesses of Motors, Property and Jobs continued to grow, with revenue up 13.2 per cent on F15 to $112.8m, off the back of a focus on premium revenue generation and product enhancements.

• Trade Me Property reported a 15.9 per cent year-on-year lift in revenue, with continued growth in 'for sale' listings from agents and very strong demand for premium products (up more than 50 per cent). A suite of new products has been rolled out, including free sales and rating valuation data to consumers, and the OneHub portal for property professionals.
• Trade Me Motors delivered another solid lift in revenue, up 11.2 per cent year-on-year as dealer revenue grew strongly (up 26 per cent) due to a strengthened sales effort and demand for motor vehicle data via MotorWeb. The ability to sell a car via the Trade Me iOS app was added in April 2016 and a reviews and news section was launched last month.
• Trade Me Jobs also delivered an increase in revenue, up 14.6 per cent year-on-year, underpinned by listings growth and ongoing demand for premium products. A 'recommendation network' that uses data to get the right jobs in front of the right job hunters was rolled out in March 2016, and a pre-release version of a new Jobs-specific Android app is now available in the Google Play Store.

In the Other segment, revenue was up 8.1 per cent year-on-year and Mr Macdonald said advertising and payments performed well.

Mobile focus

Mr Macdonald said development on a new, mobile-responsive design for Trade Me was under way. 'We want to provide a more contemporary and consistent experience for our users, regardless of device. We also expect the new site to vastly reduce the time needed to build new features.'

A new 'universal' iOS app released in July 2016 provided an updated Trade Me experience for both iPhone and iPad users. 'We're seeing the return on our mobile investment with increased audience and a growing proportion of sales being made via a mobile device,' Mr Macdonald said.

Investments and new businesses

Trade Me Insurance was launched in August 2015, delivering a streamlined, simple, good value online experience for New Zealanders buying home, contents, and car insurance. Mr Macdonald said that the business was still in its infancy, and the long-term opportunity remains attractive.

Brand and marketing

A new, refreshed Trade Me logo emerged in July 2016, kicking off a wider visual refresh. A new Trade Me brand campaign is also in market, riffing on the idea that 'Life lives here' and that behind every trade there's a person, and behind every person, there's a story.

People

Caroline Rawlinson joined Trade Me as CFO in August 2016. Caroline's most recent role was as CFO of Formica Asia (a subsidiary of Fletcher Building), and she was previously Fletcher Building's general manager of strategy and corporate development.

Elsewhere, Jeremy Wade replaced Pete Osborne as the head of Trade Me Jobs in July 2016. 'Pete has done an excellent job at the helm of this business since August 2013, and we were sad to see him return to Australia for family reasons,' Mr Macdonald said.

There was a change to the Trade Me Board this year. In June 2016, Gail Hambly stepped down as a director. She has served on the board since Trade Me's IPO in 2011, but began her association with Trade Me when Fairfax Media acquired the business way back in 2006.

Sydney-based executive Katrina Johnson joined the Board as an independent director in June 2016. She has extensive experience in technology businesses, including 12 years working in the United States and Australia for eBay and its subsidiaries. She is currently legal director of Uber Australia/New Zealand.

Outlook

Mr Macdonald said Trade Me had delivered profit growth in the second half of F16, as the investment over the last three years began to show returns.

'Looking ahead to F17, we expect total revenue to grow at a similar rate to F16 in percentage terms. We expect expense growth for the F17 full year of circa 10 per cent as our recent period of investment draws to completion. This will deliver year-on-year EBITDA and operating NPAT growth rates in excess of F16.'

He said the profit uplift was set to be delivered by the General Items marketplace and Classified businesses, driven by the increasing ease-of-use of products and converting on premium revenue opportunities.

'Trade Me has good forward momentum,' he said. 'We'll continue to derive benefit from the investment we have made over the past three years, and we believe we're better placed than ever to capitalise on the opportunities in front of us.'

-ends-

*EBITDA (a non-GAAP measure) represents earnings before income taxes (a GAAP measure), excluding interest income, interest expense, depreciation, amortisation and impairment, as reported in the financial statements.

**Net operating profit excludes a one-off impairment charge of $8.1m for FindSomeone (our small online dating business) goodwill.

Contact: Trade Me Investor Relations - [e-mail]

More info:

Full year report (18 August 2016)

Investor presentation (18 August 2016)

Webcast of analyst presentation (18 August 2016)