Trade Me annual profit rises but warns of slower growth in 2014

Trade Me, New Zealand's largest online auction site, posted slower profit growth for 2013 and warned earnings growth would remain tepid in the coming year as it reinvests in its business.

Trade Me profit rose 4 percent to $78.6 million in the year ended June 30, slower than the 8.4 percent pace a year earlier, the Wellington-based company said in a statement.

Revenue rose 15 percent to $164.1 million 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.

Trade Me, which has attracted about two thirds of New Zealand's population to its online marketplace, is adding to its core auctions business to drive future growth.

The company said today it has agreed to buy online insurance comparison business LifeDirect, adding to its purchase of inventory management company Tradevine and holiday rental accommodation website Holiday Homes in the past year.

The result is "pretty solid - good classified growth, showing strength in underlying economy and the company has many growth options," said Andrew Bascand, who holds the shares among the $1 billion in equities he helps manage at Harbour Asset Management.

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 before interest, tax, depreciation and amortisation increased 12 percent in 2013 and growth is likely to slow 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.

Before today's announcement, analysts were already expecting slower EBITDA growth of 9 percent next year.

"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," said chief executive Jon Macdonald.

Shares in Trade Me fell 2.3 percent to $4.59, crimping their annual gain to 19 percent.

The company is optimistic it can boost the performance of its general auction site, where sales of new goods failed to meet expectations.

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," 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 product development.

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

By Tina Morrison - BusinessDesk