By Bernard Hickey
Fairfax Media has announced plans for a share market float of between 30-35% of Trade Me on the NZX, and potentially on the Australian Stock Exchange.
Fairfax Media bought Trade Me in 2006 for NZ$700 million and analysts have put its value at around NZ$1.4 billion. A float of a third to raise almost NZ$500 million would be the biggest stock market listing in New Zealand since Vector sold NZ$593 million worth of shares in a float in 2005.
The previous biggest stock market float was Contact Energy for NZ$1.1 billion in 1999.
A Trade Me float would be a major boost for the NZX, given its customer base of almost 3 million people and the potential for a large number of new stock market investors.
Former Fairfax Media CEO David Kirk, who bought Trade Me in 2006 when CEO, has agreed to be the non-executive chairman of Trade Me and UBS had been appointed sole lead manager of the initial public offering (IPO).
Trade Me founder Sam Morgan is on the board of Fairfax Media and is expected to be on the board of Trade Me once floated.
Fairfax Media said it would use the unspecified proceeds from an IPO to repay debt and provide the flexibility to increase dividends. The announcement came as Fairfax Media under new CEO Greg Hywood announced an A$400.9 million loss for the year, driven by a A$650.7 million writedown of its newspaper assets. See more here in a full release.
Fairfax CEO Greg Hywood said the Trade Me IPO was designed to give Fairfax a more flexible corporate structure and maximise shareholder value
"Importantly, Fairfax will continue to benefit from the strong growth profile of Trade Me through a shareholding of at least 65%," he said.
“Trade Me is New Zealand’s largest auctions and classifieds business and its growth within the Fairfax portfolio has been dramatic - driven by its community of 2.8 million New Zealand members. The company is now of sufficient scale to operate as a standalone, separately listed company and we believe it will benefit from the increased public profile, independent access to capital, and opportunity for direct investment by New Zealand investors," he said.
Fairfax Media said the timing of the IPO had not been finalised.
A full briefing document for analysts showed Fairfax Media's earnings before interest, tax, depreciation and amortisation has more than trebled to over NZ$90 million since it was acquired by Fairfax Media in 2006 for NZ$700 million. Analysts have estimated it may now be worth more than NZ$1 billion.
Most of its revenue comes from listing fees for general items such as clothes and electronics. About a quarter comes from listing fees for cars and property, while the rest comes from jobs listing fees, advertising and 'other' items.
Trade Me also owns FindSomeone, Holiday Houses and Treat Me.
Here's more detail in a fact sheet provided by Trade Me
The websites
- Trade Me: Core marketplace of online auctions & classifieds
- Trade Me Motors: Vehicle auctions & classifieds
- Trade Me Property: Real estate classifieds, for sale & for rent
- Trade Me Jobs: Employment classifieds
- Treat Me: Group-buying
- FindSomeone: Online dating
- Travelbug: Hotel & motel booking
- BookIt: Travel & tourism booking engine
- Holiday Houses: Holiday home rentals
- Old Friends: School & workplace networking
Key statistics: Trade Me
- 2.8+ million registered members
- 1m members logged in over the past month, 1.8m logged in over the past 3 months
- In 2010, more than 1 million people bought or sold something on Trade Me
- 1.7+ million concurrent listings. Around half of all listings are brand new.
- 8.5+ million unique browsers/month *
- 700,000+ visitors each day *
- 2.5 million emails sent per day
- 25,000 message board posts daily
* Traffic and visitor stats: Nielsen Online
Trade Me offices & people
- 200 staff
- 3 broad teams: Tech, Operations, Commercial
- Head office is in Cable St, Wellington, also an office on Parnell Rd, Auckland
- CEO is Jon Macdonald
- 24/7/365 customer service team handling 11,000 emails & 3,000 phone calls per week
Trust & safety
- Focus on protecting members from illegal or unwanted activity.
- Active government and IP liaison programme, working with over 25 agencies & 600+ brands
- 24/7/365 policing team
- Direct energy into 4 areas: Prevention, detection, investigation, prosecution
- Partner with NZ Police, Customs and other agencies to deliver a safe NZ internet
TheTrade Me timeline
1999: Trade Me is launched by Sam Morgan
2000: Success fees introduced
2001: FindSomeoneis launched
2002: Old Friends is launched
2003: Trade Me Motors is launched
2004: Won Deloitte Fast 50 as NZ’s fastest growing business
2005: Trade Me Property is launched
2006: Trade Me is bought by Fairfax Media in Australia for NZ$700m, with a 2-year earn out for an additional NZ$50m
Trade Me Jobs is launched
2007: Travelbug is launched
2008: Jon Macdonald takes over the reins as CEO
2009: Daily Deals on Trade Me launched
Holiday Houses acquired
2010: BookIt acquired
2011: Treat Me is launched
Fairfax announces proposed IPO of Trade Me
(Updated with statement, details, links, fact sheet and full Fairfax Media briefing to analysts on result and IPO)
38 Comments
Interesting. A few thoughts:
- Why are they actually doing it? Have they loaded it up with debt & are keen to profit-take?
- Will the 1987 crash, & more recently Feltex etc weigh on investors' minds as to what Fairfax's motives are?
- Is TradeMe reaching the end of its effective monopoly? Perhaps the fee being deducted (from memory 7% now, outrageous for an automated service with no carrying costs) will draw competitors into the NZ market? Does Fairfax sniff that something like that is in the wings?
I wonder if those who have more understanding of this situation will comment.
Cheers
Why? Maybe they need the cash. Maybe loan ratios etc have been impacted by latest results.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10747544
The primary reason for the partial sale is to help achieve a re-rating of Fairfax itself. By partially floating Trade Me, Fairfax has clearly signalled that the market undervalues Fairfax's "sum of the parts", which is muddied because of all the vastly different operations. A partial float of Trade Me will re-rate Fairfax as follows:
- Fairfax's receive cash consideration for its c35% sale immediately - which is much easier for the market to value (a dollar is worth a dollar in equity value terms) than what the theoretical value of Trade Me is when bundled together with Fairfax's printing operations
- The float establishes a market price for trade me, which allows the market and analysts more readily able to value the residual stake held by Fairfax. Analysts and the market will be able to apple multiples to the core media and printing business of fairfax now, and just simply add the value of the shares held in trade me
There are huge benefits to a listing - both for the health of the capital markets and for Trade Me itself. Shareholders will become even more entrenched as customers and further saturate the market with name recognition. The float will be a great size for the NZX and an iconic company.
Fairfax should have done this years ago - but it is an excellent move.
If this float happens, I wouldn't be surprised if prices got frothy pretty quicky, principally from the general public and especially IT-types who'd be keen to get on board a popular NZ brand...irrespective of the underlying fundamentals. Basically, I'm thinking Xero on steroids - Xero which has somewhat mysteriously gone up quite a lot in price this last 18 months or so, despite pushing out the date when it will finally break even. I won't be buying any TradeMe shares until the dust settles.
PS: I'm thinking ACT will get my vote this year. Dr Brash seems to have some reasonable proposals with regards to taxation and increasing the pension age.
Fairfax are selling down one of the jewels in their business ... maintaining the capital intensive print divisions , but biffing out a chunk of their tech space !
..... but , let's roll some hypothetical numbers ... before we totally condemn Fairfax as the buffoons they've always appeared to be :
OK , one third of $ 1400 million , raises $ 467 million . Off an initial price tag of $ 700 million , this leaves Fairfax with just $ 233 million as a cost ( ignoring profits achieved since 2006 ! ) of still owning 67 % of the business ... $ 933 million ..... a little division , 933 / 233 , and wallah , a three-fold profit on their remaining stake . That's alot of insurance , incase the business or markets generally , go backwards .
.... so who were to true patsies in this little drama ? The Morgans ( Sam particularly , and daddy , Gareth ) and the other original partners . They could have floated a chunk of the business onto the NZX themselves , in 2006 ......... and still retained their control of this superb cashflow machine .
Aussies love Kiwis ! .. we are such patsies , playing into their hands , everytime .
It takes courage not to be a patsy..unless the internet business is generating a good cashflow for the owners already can they afford to wait. I have a internet client with a total staff of three, 900,000 customers generating 7 million USD a month pre tax profit. They could sell up now or wait for their market to mature or...product life cycle mature or...talk about having options, competitor analysis shows no one else has yet entered their market. Trademe is somewhat profitable, can't agree with the earning multiple for valuation given the business model and product life cycle with limited upside...
I know which business model of the two I'd prefer to choose from.
BH when are you going to tell us more of the interest.co model rather than the number of staff you now employ :-)
I'm not sure listing TradeMe would make any difference to eBay choosing to set up in NZ or not. There's nothing to stop them doing it now if they wanted. I'd guess they don't want to because TradeMe is pretty popular, so they'd be spending a lot to break into a pretty tiny market that already has a popular and dominant player.
Easy way for ebay, just buy the trademe shares...
For me if you have a profitable subsidary it makes no sense to sell it and reduce your income unless you were desperate for $ or saw a severe dilution of the value of the subsidary....or I guess they could be looking to raise cash to buy something else....
regards
Not seriously, and I suspect they see NZ such a small market that they haven't put that much effort into it. They do actually have a NZ website but it looks about 10 years old and has kiwis on it. I would like to see ebay try, as it would lead to some competition. Sella, which absorbed zillion could be a contender, but it just doesn't have the numbers for people selling stuff. I have found trademe is great for selling, as you can often get very good prices, even with the commissions. I can see a lot of potential with trademe, and have my own ideas how they could advance it, and I am surprised they haven't realy advanced it. The do have one of NZs largest online community message boards too.
Sella.co.nz recently bought out the online side of T&E, and now have 500,000 members.
I think as people gradually realise that the 7.5% trademe fees are a ripoff they will switch across to the free to use Sella.
I am selling my invention on both sites and Trademe does generate 5x the traffic to my auctions. However I do sell it cheaper on Sella to account for no fees. The smart ones have found it on both sites:)
You make a good point on fees, they have hiked their fees a lot, and I can't see them really being able to raise them that much further, before people look for alternatives. It is not as their they can grow their cusomter base that much, and the only way to get more revenue would be to have new innovations. What the company is worth is based oon it's revenue, and it doesn't make that much compared to what people say it is worth.
I haven't really seen too much innovation recently with the website. I think it has peaked so I won't be investing. It is too easy for a big player to come into NZ such as Ebay or Amazon which are good brands, and they could run at a loss just to get cusomters. The web is a moving target, and things chage very quickly.
I also can't help but wonder how trademe will perform in a stagflation environment.
If the drive to liquidate assets to generate cash get moving strongly in a downward spiral, then a commission based advertising scheme is going to get hit hard. Less volume and lower prices.
I am not at all surprised at Fairfax losses.
I have had two problems with delivery of Sunday Star-Times. Both were unresolved and correspondence by email was completely ignored.
Another subscriber tried to cancel but still received on-going deliveries despite correspondence and then received a demand from a debt collector.
Signs here that they have lost the plot.
Had the same problem with delivery, which led to cancellation. They would chuck the paper on the drive, and it was either nicked by people walking past, or was soaked as the bag ripped when it hit the drive. They say they are now lo longer able to deleiver it into the mailbox, as that would mean their driver would need to get out of the vehicle. What happened to paperboys/girls.
If anyone wants a jolly good laugh , pop over to the ASX , punch in FXJ , and download the 84 page annual report .... the real report , not the jazzed up glossy smiley wavey media release .
Gummy loves crunching the numbers , and Fairfax Media provide a feast . There are 2518.5 million ordinary shares on issue , which gives the company a market cap. of $A 2128 million , at the current trading price of 84.5 cents ( prior to the GFC , Fairfax shares were above $A 7 ! ) .......
....... in the balance sheet we see a monster asset total of $A 6.701 billion , and total liabilities of a mere $A 2.262 ...... leaving a net asset position of $A 4.347 ..... nearly twice the market cap. ..... Holy shit Batman , they're a bargain , fire up the Batmobile & we're down to the ASX to grab the lot ...........
....... wait up junior caped crusader ! ... grab the superduper sonic x-ray googles and peer closely into the notes section of that balance sheet ... see that ,.. $A 5.260 billion of those assets are " intangibles " ..... $A 3.254 being mastheads and trade-names , and a further $A 1.799 billion being goodwill !
$A 1.8 billion for goodwill ...... Fairfax ! ...... aha ha ha dehaaaaaaaa , ..oh .. I'm sorry , I can't go on ..... Gummy used to be employed by these idiots , Fairfax ... but they never showed this outrageously funny side to their character when I was there ........ goodwill !.. Oh lawdy , lawdy !!!
I think they leave it to you , to draw your own conclusions .
...... but in Gummy's untutored opinion , when a company's tally of " goodwill " nearly matches it's actual sharemarket capitalisation , then there's more creative minds behind the scenes in the accounting department , than there is at the front line of it's day-to-day business operations .
Captain Kirk's slayer was one Ron Walker ... . Walker was in the hot seat just long enough to pop over to Johns Road , Christchurch .. and to " open " the new printing facility ( 4 months after it began full-time printing of the daily CHCH Press ! ) ... before he too got the Fairfax knife in the back ..
.. this is a firm of great acrimony and misogyny , at the top mis-management level .... a bitter & twisted group run the company for their personal aggrandisment , not for the shareholders' returns .
DB : I feel no emotion about Fairfax , but they've been text-book lesson on how not to run a company . Belatedly they realised that the internet threat to their advertising " rivers of gold " was real , and began scrambling to catch up . TradeMe was the only truely successful acquisition .
Aussie based internet company SEEK ( ASX : SEK ) has plundered Fairfax's jobs revenues .
.... but what does get my tits in a tizz is the Morgan's . They ponce around with this genuine-Kiwi-bloke attitude , but happily sold a prime NZ asset 100 % to the Aussies .
TradeMe would have lit up the NZX , and re-focused investors away from houses and finance companys , had it been partially listed in 2006 ... and the profits would have remained in NZ . It could have become an iconic Kiwi success story ...
... but some greedy feckers sold it to Fairfax , as indeed was their priviledge ..... feckers !
I totally agree with you there, Gummy. And then in the same breath, certain members of that family will lambast the country for its historic asset sales that sends the profits of New Zealand business offshore by the billons instead of into the pockets of New Zealanders. And, that we are all a bunch of dumbasses to boot, because we're not doing it right (investing, paying taxes and being productive) or paying our own way. That's largely why I now read anything written by them with both eyes wide shut!
Over at the top 10 , Brian Gaynor has a shot at the NZ sharemarket , in that the majority of the large cap. stocks listed are former SOE's . And he is correct . Successful Kiwi companies get bought out , Charlies , 42 below , Taylors Group , Fletcher Energy , Fletcher Paper , the Christchurch Press Company .....
.... TradeMe would've been an excellent shot in the arm , just when the NZX needed it most .... instead of which , the Morgans took the Aussie money and got on their bikes .....
Obviously aliens are recognising there is something wrong on earth and are now sending their observers. Hopefully for a better world, we see some necessary replacements of “power- fools” leading currently the world – soon !
http://www.youtube.com/watch?NR=1&v=hTLcnsc3WWY
http://www.youtube.com/watch?v=4IayYZ48098&feature=related
Been plenty of headlines lately about retailers squeeling from the affects of retail by internet.
So far a big chunk of this is due to hundreds of small importers selling via trademe.
But recently things have started to shift - one reason being the 15% gst, the other being the decline of the $USA. Hey presto...it now makes a heap of sense to buy online and NOT from NZ which means NOT via trademe.
Enter EBay..timing is everything....I see them coming like freight train at trade me due to their ability to transact locally and internationally. Tradme is condemmed to be a local trader only.
Bet the shares list well though!
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.