No one can argue that recently listed Trade Me has been a phenomenally successful business.
But having already wrapped up the New Zealand market, and Australia and other territories already occupied by strong competitors such as eBay, where does it go to from here?
Speaking to NBR yesterday afternoon, Trade Me chairman David Kirk said there was still a lot of room for domestic growth.
Higher classified fees
One area was Trade Me’s classified verticals – property, jobs and cars.
“There are opportunities to growth the number of listings, and to grow price over time,” Mr Kirk said.
Mr Kirk said Trade Me classifieds were cheaper than listings in other media. The site had to provide value for customers or it would lose listings, but at the same time there was room to increase charges in a “sensible, carefully managed way.”
There were no plans Mr Kirk was aware of to raise listing fees in Trade Me's core auction business.
A second area of growth was e-commerce. New goods now accounted for 40% of Trade Me sales, and there was potential to lift this further as retailers expanded their online business.
Trade Me had no ambition to hold inventory or build warehouses in the manner of Amazon, Mr Kirk said. But he saw a growing role for his company in maintaining a platform to host professional retailers. Trade Me could offer a trusted brand, and deliver a large audience.
Although there is no dominant, all-purpose e-tailer in New Zealand like Amazon.com, Mr Kirk did not think this left a gap in the market. He said many New Zealanders shopped at Amazon and other offshore etailers. “It’s a global market.”
Some Trade Me users will have mixed feelings about the site’s e-commerce ambitions. On some sites, such as eBay, it’s now difficult to wade through all the listings from commercial traders to find good, old fashioned amateur auctions.
A third growth area was Treat Me, Trade Me’s recently launched daily deal site.
The chairman said that, in financial terms, Treat Me was still in a start up phase.
Asked if daily deal sites represented a valid business model, the chairman was candid.
“To be honest, I really don’t know,” Mr Kirk said.
Like others, Mr Kirk saw New Zealand’s daily deal market (recently estimated at $158 million) as overcrowded.
“Not everyone’s going to survive,” Mr Kirk said. He saw Trade Me’s trusted brand as the key to it being one of the last deal sites left standing.
Once the market had consolidated down to two or three big players, it would become much more clear how much potential Treat Me had as a Trade Me unit.
Mr Kirk said Trade Me had no plans whatsoever to expand into Australia or any other territory at this point.
Dividend: Should stay at 80%
In Trade Me’s prospectus, the company says, subject to market conditions, it aims to pay 80% of its profit in dividends (equating to a 5.1% yield based on the company’s listing price).
The prospectus doesn’t speak to a time-frame beyond 2013. But Mr Kirk said that with the business generating a lot of cash, capital expenditure low, and no plans for major acquisitions, he saw dividends staying at the 80% level long term.
Mr Kirk disputed NBR’s description that Trade Me had been saddled with $166 million in Fairfax debt and parent company loans.
The one-time Fairfax chief executive said Trade Me had chosen to take on the debt. “Debt is always cheaper than equity,” Mr Kirk said. The debt level was appropriate for a company of Trade Me’s size.
Over the next two years, he saw Trade Me’s debt “staying at about the same level or falling marginally.”
More shares floated
Mr Kirk would not comment on whether more Trade Me shares would be floating (one third of shares were made available during its IPO,”
“That’s a matter for Fairfax,” Mr Kirk said.