Earlier this week, online auction site Trade Me released its interim result for the 6 months ending 31 December 2012.

The result was in line with analyst expectations and achieved the final targets from its IPO prospectus released in November 2011.

The result was reasonably good even though volumes across its total business were relatively flat.

Its Classified Goods division (which accounts for around 40% of total revenue) has great momentum with revenues increasing 35% compared with the 6 months ending 31 December 2011. The three categories within the Classifieds division, Jobs, Motor and Real Estate, all saw uplift in revenues for the period, compared to the same period last year. However only Jobs saw a notable increase in volumes as it gained market share. 

The company’s General Items division is a relatively mature part of the business and there seems to be little opportunity to increase prices. Trade Me does have low fees in terms of other online auction sites but any further rise in prices within this division could see sellers diversifying to other selling channels. 

With the majority of categories showing flat volume growth, can further revenue growth only come from price increases? 

Attracting international retailers, and pushing the ‘New Goods’ category, is an important volume growth driver. 

In Jobs there is limited pricing opportunity due to the competitive dynamic with Seek and the same applies for Motors although Trade Me has added additional features in this area. However, Real Estate does have the flexibility to increase prices. 

It’s surprising to see such flat volume growth in a company that has such a dominant market position in New Zealand. Trade Me’s strong market position should allow it the flexibility to increase prices but it will be more dependent on volume growth to drive earnings. 

Trade Me has a very strong market position but it hasn’t taken full advantage of this position. It needs to concentrate its efforts on certain high yielding areas or look at new areas where it can leverage off its strong reach to online shoppers.

Victoria Harris

Investment Analyst