Shares in Trade Me Group fell to a 19-month low, making the stock the worst performer on the benchmark NZX 50 Index, after New Zealand's largest online auction site posted lower-than-expected first half profit, raising doubts about its future earnings growth.
Trade Me shares fell as low as $3.68, and
recently traded down 6.2 percent at $3.80.The Wellington-based company said first half net profit rose 2 percent to $38 million, slower than the 2.7 percent earnings growth in the year earlier period and below First NZ Capital's estimate of $40.9 million.
Trade Me employed an extra 50 people in the past six months, taking its total headcount to 350, as it strives to improve its web site, adding more services and functions, in order to grow future profits. Expenses rose 19 percent to $25.2 million, outpacing 6.6 percent revenue growth to $85.7 million. In the second half, the company expects expenses will continue to accelerate at a faster pace while revenue will grow only modestly, leading to "subdued" full-year earnings growth.
"It was a weak result, revenue growth was far lower than expected whereas growth in expenses was quite high, which really meant that net profit was pretty flat so that was very disappointing," said Mark Warminger, who helps manage $710 million in New Zealand equities at Milford Asset Management. "There is going to be material downgrades right across the board for this year and for next year. It doesn't really look like the business is going to turn around any time soon especially with poor revenue growth and higher costs going forward."
Milford sold down its holding in Trade Me, which was spun out of Fairfax Media in 2011, after the shares reached around the $4.50 to $5 level, believing the stock was expensive for what the fund manager considered a low growth company.
