What's new?

Seek's position as the leading online employment website has enabled it to withstand the rigours of the past year.

Importantly, the structural migration of employment advertising from print to online has continued, which has made Seek's business even more entrenched.

Predictions of 8.5 per cent unemployment have not come to fruition. Indeed, Australian unemployment looks set to peak below 7 per cent, with job advertisements beginning to edge up.

Seek's expanded international portfolio of investments has given the company a foothold in some very big markets. In China, the company now has 56.1 per cent of Zhaopin. While the industry is still young in China, it is growing quickly. It will be important for Seek to impose careful financial discipline on the business to ensure it captures a profitable slice of the gigantic market.

Similar sentiment exists over the investment in Brasil Online, where Seek now has a 30 per cent stake. Seek has an active role in the development of this business, which is another good sign that its expertise will be utilised, even if the market dynamics there are quite different to Australia.

A 10.1 per cent stake in listed Malaysian company JobStreet looks to be a more challenging project. Seek is not in a strong position in this investment but it is early days yet.

The outlook

Many companies took advantage of the global financial crisis to downsize their workforce during 2009. Much of this was deemed necessary to stay within banking covenants relating directly to operating profits that had plunged. This in turn caused a logical drop in the volume of job advertisements as demand for labour was put firmly on hold. Now, as business and consumer confidence have returned to the economy, the worst fears of economic forecasters, including the Treasury, have not played out.

The increasing volume of jobs advertised online is not the only weapon for growing earnings. Yield management is the other important factor in revenue growth. Roughly one-quarter of revenue growth is from increasing prices or yield growth. Sectors such as health care, education and government are increasingly using sites such as Seek to find employees. The key aspect for Seek is these growth categories have generally higher yields.

The company's outlook for the calendar year 2010 is based on the modest revenue growth achieved since April as the economy regains momentum. Seek believes stronger market conditions will lead to a continuation of the structural growth theme that has been the bedrock of its success to date. This is a reasonable assumption in our view.

Price

Seek did not let down its initial IPO investors. The stock steadily rose from about $2 in 2005 to a pre-GFC peak of more than $9. The perception that Australian job ads would become an endangered species subsequently saw the stock return to lows of about $2. Since then, the stock has hugely outperformed the market, rallying to more than $6 currently.

Worth buying?

The clear advantage that makes Seek a good business is it occupies the number-one position for advertising jobs online. The reason Seek is a good investment is because the business is well run, low cost and has a strong growth profile. We recommended Seek as a buy to our members in April and took some profits in August. Our current recommendation for Seek is a hold.