Trade Me’s growth options
It was interesting to hear new Trade Me chief executive Anders Skoe outlining his plans to inject fresh growth into the iconic business this week.
Skoe is no stranger to ecommerce having been chief executive of Norwegian classifieds website Finn and making a good fist of broadening it from classified verticals to a full marketplace.
Skoe was bullish when interviewed on Radio New Zealand. It almost sounded like under each digital rock he turned over there were new opportunities for growth.
One of the real benefits of coming in fresh is that you don’t own the current results that the business is delivering. So rather than viewing the status quo as the result of years of planning, innovation and painful execution, it’s ground zero. The starting place.
So what might fresh growth options look like for the 20-year-old business?
Well, the first thing to realise is that the Trade Me business isn’t one business, it’s four plus some rats and mice.
There’s a marketplace business which went backwards for a few years but thanks to hard work by former marketplace head Rick Davies delivered growth of 1.3 per cent last year with revenues of $70m.
There’s a strong property business giving $38m of revenue last year, with superstrong growth of 26 per cent YOY reported back in February this year.
There’s a solid jobs business that did $28m in revenue last year and reported 7.1 per cent growth in February.
Then there’s the crown jewel. The motors business delivered revenue of $70m last year and reported 8.8 per cent growth in February. This is a business that is almost 10 times the size of the number two player.
While impressive enough in their own right, what these numbers don’t tell is profitability.
Trade Me doesn’t disclose middle and bottom lines for its classified verticals, but they have a reputation for being ridiculously efficient. When Sam Morgan sold it to Fairfax in 2006, its expenses were just 10 per cent of revenue. But that wasn’t sustainable, so let’s say that these days expenses eat up 30 per cent of revenue.
If we take that assumption and extend Motor’s recent 8.8 per cent growth to the full F19 year, then Trade Me Motors would deliver $76m of revenue and $54m of earnings.
If they were to strip that out as a standalone business, it would make Trade Me Motors more profitable than the majority of the companies on the NZX with efficiency ratios most dream of.
Which begs the question, why wouldn’t you strip it out? Motors could enter into a platform agreement with the Trade Me mothership for use of the common infrastructure, cross-platform promotion and supply.
Then Trade Me could list it as a standalone entity, but retain a 51 per cent stake. If it listed at a 10-times revenue multiple (which is what Trade Me sold for) that would unleash $760m of value. Over half of that would flow back to Apax Partners with the prospect of further value unlocking if the share price tracked north.
It would also provide Apax with a prototype path should they wish to rinse and repeat with the other verticals.
Verticals aside, fresh growth could also result from the data side of the business. Having the browsing and buying history of more than 3 million people for 20 years is not trivial.
Throw in their dating history (Findsomeone), their payment patterns (Paystation/Ping) and their insurance interests (LifeDirect); and you’ve got a pretty grunty receptacle of consumer behaviour. To date Trade Me has had a Presbyterian approach to how it monetises data, but with new owners that could change.
New house builds has already been flagged by Skoe as an area of interest, and given the recent rebirth of KiwiBuild there has to be potential for working with the Government.
Trade Me has done this effectively before when they built www.landcheck.org.nz for the Government after the Christchurch earthquakes or when they partnered with EECA around energy efficiency.
There’s also the prospect of getting into the trade services market, providing a demand-side marketplace for consumers wanting jobs done. Something Finn’s parent company does in Norway.
Lastly, Facebook Marketplace, while bumpy and yeasty, clearly has big potential. Now could be the time for Trade Me to set up a free classifieds business with an environmental flavour to it such as ‘‘free to pick up’’.
As well as allowing Trade Me to eat itself rather than being eaten by Facebook for low-value goods, it would allow Trade Me to flex its proven muscle around product as well as trust and safety tools.
When Apax’s $2.65 billion bid came out there was broad analyst advice to take the money as they saw few easy paths to growth.
Skoe might be just the person to prove them wrong.
Mike ‘‘MOD’’ O’Donnell is a professional director, writer and facilitator. His Twitter handle is @modsta. Disclosure: MOD is a former chief operating officer of Trade Me and author of ‘‘Trade Me – The 10 year overnight success’’.
Having the browsing and buying history of more than 3 million people for 20 years is not trivial.