Are Seek (ASX: SEK) shares a good pick for long term investors?

The Seek share price has recently returned to its pre-COVID levels. Is it worth a closer look for long-term investors?
The post Are Seek (ASX: SEK) shares a good pick for long term investors? appeared first on Motley Fool Australia. –

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While SEEK Limited (ASX: SEK) was not immune from the impact of the COVID-19 pandemic, the Seek share price has recently returned to its pre-COVID level of around $23 per share.

The online job seeking platform announced a loss of $414.9 million (-9%) in earnings before tax from June 2019 to June 2020. However, its diversified business model is the reason why I think Seek is a diamond in the rough, despite its underperformance in FY20.

Diversified markets and products

As an Australian employment marketplace that matches jobseekers and employers, Seek’s main revenue stream comes from job advertisements.

Accordingly, the jump in the national unemployment rate from 5.2% in March to 6.2% in April led to a dip in Seek’s share price. The company’s second quarter billing dropped by 65% compared to the same period in FY19.

However, Australia is showing signs of recovery. The Australian Bureau of Statistics revealed a rebound on payroll numbers by almost 5% since June. Despite the signs of a pickup from April’s lows amid the national lockdown, the prospects for and the domestic employment market in general are still uncertain. We are battling with the virus until a vaccine is ready.

The local Australian market may not be at its best for Seek, as evidenced by its negative revenue growth of 12% in FY20. The company has been relying on its investment in Zhaopin, a Chinese online recruitment web platform (which posted revenue growth of 16% in FY20) and early stage ventures (with revenue growth of 18% in FY20) to diversify downside risks.

The company also operates in Asian countries such as Hong Kong, Malaysia, Singapore, Philippines, Thailand, Indonesia and Vietnam using different brand names. In addition, it has scaled up its investment in early stage ventures such as Coursera (an online open course provider) and Go1 (a digital learning library) in 2020. As such, I think Seek can capture a large market opportunity globally and generate a sustainable return on investment given the increasing need of home learning.

Investing in the future of work

There is no doubt that COVID-19 has highlighted existing workforce challenges in Australia. As the Australian Federal Budget 2020–21 was focused on the future of work, jobs and reskilling local workers, I see an opportunity for Seek to build on this momentum in the human capital market.  

For example, the company has made a long-term future investment plan to tap into 3 niche segments (online education, human resources software as a service, and contingent labor) with a target return rate of 15–20% over the next 5 years. 

This year the company delivered strong results in these 3 areas. Additionally, its growth strategy is a complement to the Government’s plan to look at the future of work. Seek’s share price has revived steadily to the pre-COVID level with good business potential. 

Foolish takeaway

Based on the company’s growth plan, I believe that the value of its international assets and early stage ventures will become an important driver of the Seek share price in 2021.

At the current time, it appears the domestic job advertisement recovery is already being factored in. I think the Seek share price could be appealing to long-term investors – investors should pay attention to Seek’s offshore growth and its ability to unlock the full potential of its ventures. 

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Motley Fool contributor Miles Wu has no position in any of the stocks mentioned. The Motley Fool Australia has recommended SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Are Seek (ASX: SEK) shares a good pick for long term investors? appeared first on Motley Fool Australia.

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