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Trade Me boosts annual profit 26%; warns growth will slow in 2018

Thursday 24th August 2017

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Trade Me, New Zealand's largest online auction site, posted a 26 percent jump in annual profit as it reaped the benefits from its earlier spending on staff, product development, marketing and sales. However it warned earnings growth will slow in the coming year as it ramps up investment.

Net profit rose to $94.4 million, or 23.76 cents per share, in the 12 months ended June 30, from $74.9 million, or 18.87 cents, a year earlier, the Wellington-based company said in a statement. Revenue increased 7.7 percent to $234.9 million.

The latest profit includes $342,000 of losses from the company's stake in lending platform Harmoney, compared with $1.6 million of losses booked the year earlier. The latest year also includes a $1.4 million gain related to the sale of Trade Me's accommodation website Travelbug and online booking engine Bookit and the release of an earn out provision related to its purchase of LifeDirect, while the year earlier profit included an $8.1 million write down for its online dating business FindSomeone.

Trade Me is coming out of several years of tepid earnings growth after it ramped up spending to reinvest in its business, with expenses increasing just 5.7 percent in the latest year, down from an 18 percent pace in 2016 and a 26 percent pace in 2015. Chief executive Jon Macdonald said today that the multi-year period of accelerated reinvestment in people, product development, marketing, and sales, had set the company up for success over the medium to long term. The investment paid off in the latest year with earnings before interest, tax, depreciation and amortisation up 11 percent to $155.7 million and net operating profit up 12 percent to $93 million. However Macdonald warned that the pace of growth wouldn't be sustained this year as the company ramps up investment.

"Looking ahead to F18, we expect total revenue growth similar to that reported in F17, however a soft property listing market means there is some downside risk," Macdonald said. "With our targeted investment plans, we intend to invest at a rate slightly above revenue growth in F18, but we still expect to deliver year-on-year ebitda and operating NPAT growth in F18, albeit at lower growth rates than F17 due to that higher level of investment."

In the latest year, Trade Me increased its staff numbers to 543 from 509, and today it signalled plans to expand its team in Christchurch with the aim to hire about 30 tech staff over coming months. 

Trade Me's general marketplace business lifted ebitda 7.2 percent to $52.1 million, as revenue advanced 7.2 percent to $70.4 million, more than double the 3.5 percent revenue growth a year earlier. Macdonald said the unit had benefited from the introduction of buyer and seller protection and the company was focused on making trading easier with product enhancements such as Afterpay and its 'book a courier' service.

Its classified business, which includes motoring, property and jobs, boosted ebitda 15 percent to $86.8 million, while revenue lifted 11 percent to $125.5 million as it benefited from improved products and strong growth in premium revenue. Macdonald noted jobs was the best performer, boosting revenue 25 percent, while motors revenue advanced 8.2 percent and property revenue lifted 7.3 percent.

Trade Me chair David Kirk noted the company faces competition from global rivals such as Amazon in its marketplace business, with the US company slated to establish operations in Australia later in 2018.

While Trade Me won't be able to match Amazon for product breadth or on price for all products, Kirk said the Kiwi company's local brand, the trust it has built with New Zealanders over the last 18 years and its local network economics will remain powerful competitive advantages.

Trade Me will pay a final dividend of 10 cents per share on Sept. 19, taking the total annual dividend to 18.5 cents, up 10 percent from the year earlier.

The company's shares last traded at $4.84 and have shed 3.4 percent this year.


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