Trade Me reports slower profit growth, buys insurance website

Trade Me [NZX:TME] has reported slower profit growth, and has warned of even slower times ahead.

The auction site also says it is buying LifeDirect, an insurance comparison website (NBR is interviewing Mr Macdonald early afternoon about this latest diversification from its saturated auction business). A purchase price was not disclosed but is said to be "not material". LifeDirect has 11 staff, Trade Me says.

In a statement, Mr Macdonald says, "We believe providing consumers with a single venue to compare insurance products easily and efficiently is sound, and aligns with Trade Me’s core purpose of connecting two parties to undertake a transaction.”

Trade Me's profit for the year to June 30 rose 4% to $78.6 million, slower than the 8.4 percent pace a year earlier.

Revenue rose 15% to $164.1 million, in line with analyst expectations, as classified advertising sales surged 29 percent while fees from sales of general items rose 5 percent.

Profit was just above First NZ Capital's estimate of $77.6 million, and Forsyth Barr's estimate of $77.4 million.

Performance disappointed in the key area of new goods. Trade Me has been on a drive to get more commercial retailers using its site. But in a statement,  CEO Jon MacDonald said "there was lower return on effort than we’d hoped."

On the 2014 financial year, Mr Macdonald says,  "We expect to grow top line revenue and bottom line earnings but these will reflect slower growth than we've recorded this year while we focus on reinvestment in the business."

Trade Me, which was spun out of Fairfax Media in 2011 in an initial public offering, said profit growth slowed in 2013 reflecting higher interest costs following its IPO and because of a $3.3 million one-time gain the year earlier. Finance costs increased 78 percent to $7.2 million in 2013.

Earnings growth was likely to slow further in 2014 as the company invests in improving the performance of its general items auction unit, develops products and marketing for its classifieds section and looks to new business opportunities and revenue lines, Trade Me said.

Some 40 percent of all visits to Trade Me are from mobile devices and the company is developing technology applications to meet the demand, the company said.

"Growth in mobile, new products in the classifieds, the migration of advertising yield online, the long-term opportunity in online retail and forays into new businesses all provide sizeable opportunities for Trade Me over the coming years," Mr Macdonald said.

The migration of online activity to mobile devices constitutes "both an opportunity and a threat to us," the company said.

The company's expenses rose 13 percent to $40.7 million in 2013 as it took on new staff to accelerate produce development.

Trade Me will pay a dividend of 8.3 cents a share to be paid on September 24.

Shares [NZX:TME] closed yesterday at $4.70 and have gained 19%  this year.

Ahead of today's announcement, Forsyth Barr had a hold rating on Trade Me, with a 12-month target of $4.88.