Why Seek is one of the most expensive stocks on the ASX 200

Seek (ASX: SEK) shares opened 8% lower on Tuesday after its FY24 results missed analyst expectations and the company guided to an even weaker FY25.

"Seek's headline financial outcomes for the year were impacted by a significant reduction in job ad volumes across APAC relative to previous record highs, and the impairment of our investment in Zhaopin," said Chief Executive Ian Narev.

FY24 results at a glance

The FY24 results fell short of Macquarie forecasts (as at 26-Jul) and consensus:

• Revenue down 6% to $1.08bn, in-line with Macquarie expectations

• EBITDA down 14% to $468.9m or 1.2% below ests

• Adjusted net profit after tax down 33% to $177.4m or 2% below ests

• Reported net loss of $59.9m (vs. $230.3m profit a year ago)

• Final dividend down 30% to 16 cents per share

• Full year dividend down 25% to 35 cents per share

FY25 guidance was the kicker

While the FY24 result was a little soft, the FY25 guidance was far from pleasant.

• Revenue between $1.02bn and $1.14bn

• Total expenditure of $740m and $810m

• EBITDA of $430 and $500m

• Adjusted NPAT between $130m and $180m

The adjusted NPAT figure (at the midpoint) represents a year-on-year decline of 12.6% and 27% below consensus expectations.

A weak result was not surprising

Before today's result, Seek was down around 17% year-to-date, mirroring the ongoing decline in Australian job advertisements.

The latest ANZ-Indeed data highlighted this trend, showing a sixth consecutive month of decline in July. Job listings dropped 3% month-on-month, a steeper fall compared to June's revised 2.7% decrease. Since the start of the year, job ads have plummeted by 16.7%.

Historically, the performance of Seek shares and Australian job ads go hand-in-hand.

Seek share price (blue) vs. Australian job vacancies (red) indexed to 100 (Source: TradingView)

But not that weak

The magnitude of the earnings downgrade has caught the market off guard. Macquarie was previously expecting Seek to guide towards FY25 adjusted net profit of $196 million.

The $130 million to $180 million guidance is 8% to 33% below Macquarie's expectations (or a 21% miss at the midpoint).

"For FY25, economists are forecasting weaker macroeconomic conditions in most of our markets. Based on our historical experience of similar conditions, we have assumed that paid ad volumes in ANZ will continue to decline throughout FY25," said Narev.

The guidance suggests that Seek is trading around 47x FY25 earnings. Now 47x is fine if you're punching out strong year-on-year growth. But today's result has just guided to flat revenue and negative earnings growth.

Under this guidance, Seek's valuation could halve – and it would still appear expensive.

Why isn't it falling further

A few factors come to mind, including:

• Limited large cap Australian tech stocks: Institutional investors and super funds seeking significant tech exposure in Australia face a narrow selection. This scarcity of local tech options may inflate relative valuations, even for companies without strong growth prospects.

• Seek's market dominance: Seek's FY24 results presentation highlights its commanding position, with a 32.8% share of current job placements – 3.6 times that of its closest competitor.

• Cyclical nature of job ads: Like all cyclical industries, the job advertisement market will eventually bottom and rebound. The key question remains – when will this turnaround occur?