Trade Me's reach into the financial services market yet to pay off
Trade Me's foray into the financial services market is yet to prove a winner with its fledgling insurance business under-performing and an investment in loss-making peer-to-peer lender Harmoney causing a drag on profits.
The Wellington-based online marketplace and classified advertising business today reported a 9.2% revenue uplift to $218 million for the year ended June with its general items marketplace restoring revenue growth after a two-year absence. Underlying profit was up 3.5% to $83 million and the company had a one-off impairment charge of $8.1 million from its struggling online dating business FindSomeone.
Net profit was 1% lower due to accounting for losses from the group's 12.4% stake in lending platform Harmoney, the country's first peer-to-peer lender, which is facing increased competition from the arrival of other licensed P2P lenders Squirrel Money, LendMe, Lending Crowd and PledgeMe.
Harmoney reported a $14.2 million loss in the 2016 financial year, compared to $6.3 million the previous year and Trade Me's share of the loss from continuing operations was $1.6 million, double the amount the previous year. Head of marketplace Stuart McLean has joined the Harmoney board.
Chief executive Jon Macdonald says the investment is a good fit as the two online platforms have a lot in common and he has confidence that it will pay off in the long-term as the new model for the lending industry gains traction.
Like many early-stage technology startups Harmoney continues to make losses and Mr Macdonald wouldn't be drawn on what share of losses Trade Me may need to account for in the 2017 financial year. Harmoney has said it is targeting cash flow neutrality - where the money coming in matches the money going out - this financial year.
Harmoney burned through $13 million of cash in the last financial year, after raising almost as much through share issues, and Mr Macdonald points out the valuation in its latest fund-raisings were at a higher level than what Trade Me paid for its stake though that revaluation can't be accounted for in its books.
Trade Me launched its insurance arm a year ago, selling car, general and house contents insurance direct online. It is underwritten by Tower Insurance.
Sales have been low, though Trade Me wouldn't provide volume or revenue numbers, and has only carried out a low level of marketing so far. Mr Macdonald said it was "early days" and he still believes in the long-term opportunity.
"We've had a few performance issues we've had to iron out. At the moment we've seen low volumes and lower than anticipated a year ago," he said. "We've now got it to a place from experimenting and learning where we have confidence to scale it up."
Trade Me acquired the life insurance comparison website Life Direct in 2013.