Trade Me (TME)

[Balance]

Best comment, and actually the answer to your own question. Why would you sell using it? Because it will find a buyer for you, and yes it charges a fee for this service, at a level which the market will bear.

The fees are lower than international sites such as eBay. GET OVER IT. How else are you going to sell your stuff...

I'm quite tired of various threads becoming consumer advocacy tirade's. This is a website for people to make money by investing.

Haha - very true.

Nevertheless, TradeMe business model now has a problem. Where is growth in profits coming to come from?

[modandm]

Why? Because it gives a good view of the market and how people treat and see TM. If people aren't buying and selling items on the sute, please enlighten me WHY we WOULDN'T want to know this crucial information (it is a business that needs cashflows last I checked!)

PSYCH and and ECON 101 mate.

YOU get over it.

(and please disclose that you are active in buying TM stock as well when saying this stuff please)

Haha, okay - believe me I wouldn't bother, and it would be a violation of my ethical commitment to attempt to ramp the stock.

I am aware of the 'disenchantment' some posters feel about the classifieds business, I would just hope posters consider what might be interesting to others in the context of an investment in the company, rather than general chit-chat and beat ups.

As to why I believe the company can return to growth, its never stopped growing. Last year the company grew revenue 15%. This year its likely only 8% topline, but profit growth will be 0%. The reason for that is increased investment/marketing which I think is supportive of long term ambitions.

e-commerce is a secular growth area of the economy, I see it continuing to take share from bricks and mortar in NZ. TradeMe is currently weak in the new goods area which is the fastest growing. They have invested in this area so far with modest results. My investment case is built on the general items business growing at just 1% p.a topline which I think is conservative.

The faster growing area is classifieds - property, motor, and jobs. A combination of volume and yield (price hikes), should support a tidy growth rate here, and i expect further innovation or acquisitions. in the past they have done this successfully with the likes of batch rentals, motorweb for car dealers, and lifedirect. I believe there is opportunity for price comparison services, as well as others we haven't even thought of yet. TradeMe is the natural buyer for any successful NZ tech start-up aimed at NZ consumer.

Onto my assumptions and valuation:

As above general items revenue growth of 1% next 5 years.
Revenue growth of the classifieds business at 15% over the next 2 years, then 10%. Other revenue growth at 10%p.a
Costs overall I see going up 30% this year (cause of profit growth slowdown), but after this I model 10%, 9%, 7%, 7%.
Depreciation and amortization I model 35% increase this year, tracking down to 10% growth by FY17, this somewhat factors in further acquisitions.

The result of this is net profit growth of -0.6% this year, then 7.4%, 9.4%, 7.5%, 7.7% over the next few years.

FY18 eps of 26.7c - put that on a forward multiple of 20x you get $5.34 or 18x, $4.81. Add dividends with modest growth = between 60% and 75% total return, over 3 years.
Given the strong balance sheet, high margins, low capital intensity, monopoly position, and cash conversion I think it warrants these multiples if growth can be sustained at these rates.

Attractive to me, I think its low risk, good reward. If they make more acquisitions, could be even better. They could also increase leverage (from a low starting point), and increase ROE and capital returns which would further boost total return.

As always DYOR - mod

[noodles]

FY18 eps of 26.7c - put that on a forward multiple of 20x you get $5.34 or 18x, $4.81.

mod, Thanks for taking the time to lay out your assumptions and valuation. Key to the valuation is the "20x" earnings. I wonder if this is on the high side?. EBAY is on a FY15 pe of 19.5. You could argue that EBAY deserves a higher pe given it is not constrained to the NZ market and has a stronger brand.

[modandm]

mod, Thanks for taking the time to lay out your assumptions and valuation. Key to the valuation is the "20x" earnings. I wonder if this is on the high side?. EBAY is on a FY15 pe of 19.5. You could argue that EBAY deserves a higher pe given it is not constrained to the NZ market and has a stronger brand.

It's a fair point you make.

You could argue that eBay is structurally disadvantaged to Amazon, Paypal is vulnerable to competition, and that eBay is the slow growth 'General items' part of TME, not the high growth Carsales.com, or Zoopla which trades at even higher multiples.

Also I would argue NZ companies should trade at a premium to US ones, given our favorable dividend tax policy. The fact AIA trades at near 30x and SKC at 16-18x supports TME at 18-20x, and in the past its been as high as 25x. Don't get me started on the mad valuations of XRO, and the healthcare sector..

Thanks for following up Mod

no worries moosie

[Mista_Trix]

... This is a website for people to make money by investing.

Exactly, and where is that growth going to come from if they've already maxed out their fees. When they wiggled with them, as a consumer of the service (sorry I know I'm not allowed to talk about it, but its all valid) I made a decision to bother less with the little stuff that I used to put up - tops, t-shirts, shorts etc, because the payoff just wasn't there anymore compared to what it was after the fee hike. I made a concious decision to nolonger list smaller items and just take them to the opshop instead - better use of my time. How many others I wonder made this same type of change in their behaviour in relation to the site??

As a side comment, there are also a lot more knock off items than before, and TradeMe seems to police these items less than they used to, so that's a bit of a worry as well.

All this aside, I think its got a dominant market position, and will continue to exist in the same space it has in the past, but has clearly run out of growth - unless it buys up more businesses - I will try and buy at the bottom for a Div hold.

[Balance]

Latest real estate listings for Auckland :

TradeMe - 8,418

Realestate.co.nz- 9,432

Losing ground and showing no sign of regaining.

[BlackCross]

Ebay seems to have allowed them almost free reign in NZ. Maybe that will change someday?

As for the site? Expensive and not enough control over some of the numpties that use it. Just look at 'walters' feedback. http://www.trademe.co.nz/Members/Fee...member=1581467
Why are people like that allowed to even log on beats me.

[winner69]

Latest real estate listings for Auckland :

TradeMe - 8,418

Realestate.co.nz- 9,432

Losing ground and showing no sign of regaining.

Billy idol and britney spears tee shirts . Must have had a change if heart

[Balance]

Ebay seems to have allowed them almost free reign in NZ. Maybe that will change someday?

As for the site? Expensive and not enough control over some of the numpties that use it. Just look at 'walters' feedback. http://www.trademe.co.nz/Members/Fee...member=1581467
Why are people like that allowed to even log on beats me.

Trade Me is like NZX - it's all about profits.

Bugger the members and the goods/services etc bought and sold.

Short term it works but longer term, participants are continuously looking for an alternative and will actively support the alternatives if they stack up.

[modandm]

oh my bleading heart. There have been several competitors, ebay, telecom's ferrit, some other one's I can't remember, and then wheedle or whatever.

This is a business - just like AIA, SKC, NZX, XRO, any of them - they charge what they can! Trademe has a fantastic business. If that upsets you too bad.