Macquarie sees trouble ahead for Seek’s stock price

On Wednesday, Macquarie Bank retained its ‘underperform’ ranking on Seek (ASX:SEEK), arguing the company's share price is still overvalued.

On a twelve month basis, Macquarie expects existing Seek shareholders to lose -17% of total returns. 

The bank has given Seek a price target of $19.50; the price at 1400 AEST Wednesday 25 January 2023 is $23.85. 

Macquarie gives the company a valuation of a flat $15.00. 

Full year guidance downgrade expected 

Wednesday’s note precedes Seek’s release of its half year result for the 2023 financial year (1H FY23). 

Macquarie Bank expects the 1H FY23 report to include a guidance downgrade for the full year (FY23E).

The key driver behind this, the Bank forecasts, will be a softer listings environment. In short: less jobs being posted, less money for Seek.

Macquarie also noted it will be closely watching operational expenditure (opex) costs in the current inflationary environment. Case in point: Australia’s latest inflation data came in at 7.8% on Wednesday. 

But then there’s dynamic pricing 

Macquarie did also highlight its belief a softer macro environment (outside of job listings revenue) could benefit Seek’s performance in the context of its use of dynamic pricing. 

Dynamic pricing, in short, means that Seek charges a changing rate based on demand. 

Think about buying airplane ticket prices which fluctuate hourly: that’s dynamic pricing. Seek introduced the measure back in 2019, right before COVID hit. Shareholders responded with gusto. 

In layman’s terms, Macquarie perceives Seek will need to charge higher rates per ad to make profit in an environment where less people are posting ads.

“Early days” for positivity  

However, that did not see its underperform rating changed, and the Bank described its analysis on this front as “early days.” 

“We note the applicants per ad index have been marginally increasing. This is a key condition for the group to execute on its dynamic pricing strategy (price-to-value),” Macquarie Research wrote. 

The bank also highlighted that a risk to its bearish outlook was a potential ALP-led policy shift to support the labour market, as well as “progress in Asia,” where Seek is also established.

This comment presumably references a now-COVID-infected China’s eventual return to ‘normal’ workforce participation. 

Worth considering is that youth unemployment in China is nearly 20%, according to its own government data. 

Seek's one year chart