Fairfax to float Trade Me on NZX

Fairfax Media says planning for share market float of 30-35% of Trade Me on NZX and potentially on ASX

26th Aug 11, 10:55am by Bernard Hickey

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)

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38 Comments

by Philly | 26th Aug 11, 11:15am 1314314152

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

by meh | 26th Aug 11, 11:55am 1314316527

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

by Keyser Söze | 26th Aug 11, 1:32pm 1314322320

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.

by Carpetbagger | 26th Aug 11, 2:50pm 1314327036

Same reason JK is selling SOEs isn't it?

by PI_Rimmer | 26th Aug 11, 11:33am 1314315194

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.

by Keyser Söze | 26th Aug 11, 1:43pm 1314322991

Xero has massive losses and is a listed ponzi scheme.

Trade Me is quite possibly one of the most consistently profitable companies I have ever seen.

by Gareth Vaughan | 26th Aug 11, 11:33am 1314315207

Fairfax has also written down the value of its mastheads (newspapers), customer relationships & goodwill by A$650.7 million.

by Gummy Bear Hero | 26th Aug 11, 1:31pm 1314322318

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 .

by Plan B | 27th Aug 11, 2:24am 1314368680

not sure about the last bit, OK so if the Morgans etc had floated it themselves, Would NZ investors have backed it in the way that they probably will now it has the official endorsement of clever foreigners- just a thought

by speckles | 27th Aug 11, 4:57pm 1314421073

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 :-)

by Chairman Moa | 26th Aug 11, 11:34am 1314315252

If Trademe is listed, it's only a matter of time the likes of eBay will enter our market and then watch those share price.

I've been using Trafeme for years but it's a little behind eBay in terms of technology adoption.

by PI_Rimmer | 26th Aug 11, 11:38am 1314315518

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.

by steven | 26th Aug 11, 11:55am 1314316500

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

by Keyser Söze | 26th Aug 11, 1:34pm 1314322471

eBay has tried and failed several times to compete in NZ. it dominates Australia.

by Rob | 27th Aug 11, 6:28pm 1314426524

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.

by scarfie | 26th Aug 11, 11:54am 1314316464

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:)

by PI_Rimmer | 26th Aug 11, 11:58am 1314316700

Perhaps someone should tip off Terry Serepisos that Sella has lower comissions - that could be handy for him as he desperately sells of what remains of his property 'empire.'

by scarfie | 26th Aug 11, 12:01pm 1314316868

Haha yes.

Just as well Trademe take the Real Estate listing fee up front.

by steven | 26th Aug 11, 12:09pm 1314317340

Funny as.....I thought I'd sign up to sella and also clicked on the 18+ category.....that may have been a mistake as the first thing that popped up was an .....er....butt plug.....Im sure its a very nice um butt plug, but no thanks.....LOL

ouch......

regards

by We Are Stuffed | 26th Aug 11, 12:40pm 1314319236

is that Scarfies invention?

by steven | 26th Aug 11, 12:42pm 1314319320

Dunno, I unclicked the 18+....

not very impressed with the quality of the stuff there though.....maybe in time.

regards

by Rob | 26th Aug 11, 6:58pm 1314341935

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.

by scarfie | 26th Aug 11, 10:09pm 1314353363

Astute thinking on the customer base and future revenue streams, you would have to think they are close to maxed out there.

Always hard to dislodge the incumbent, but maybe arrogance and greed in that department might be their undoing.

by scarfie | 26th Aug 11, 11:59am 1314316768

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.

by steven | 26th Aug 11, 12:12pm 1314317565

Well I assume ppl will be selling more....and also looking for bargins....I'd expect the retail shops to be hit harder than Trademe myself....but who knows for sure....Hell would freeze over before I'd own retail sector shares right now......

regards

by Basel Brush III | 26th Aug 11, 1:43pm 1314323020

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.

by Rob | 26th Aug 11, 7:01pm 1314342093

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.

by Gummy Bear Hero | 26th Aug 11, 1:59pm 1314323943

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 !!!

by Colin Riden | 26th Aug 11, 7:40pm 1314344440

So, do the accounts point out that they have negative net tangible assets?

by Gummy Bear Hero | 26th Aug 11, 9:38pm 1314351496

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 .

by David B | 26th Aug 11, 10:04pm 1314353073

I must admit I have not followed Fairfax at all, Gummy. But has it gone down the poop shoot since they dumped David Kirk? If so, serve the aussie dumbasses right.

by Gummy Bear Hero | 26th Aug 11, 10:33pm 1314354792

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 .

by David B | 26th Aug 11, 10:38pm 1314355097

Gotcha! Well then that $400 million loss couldn't have happened to a more deserving bunch! And given that the share price was once $7.......

I’m sure gummy you sleep very contented at night.

by Gummy Bear Hero | 26th Aug 11, 11:02pm 1314356541

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 !

by David B | 26th Aug 11, 11:54pm 1314359645

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!

by Gummy Bear Hero | 27th Aug 11, 12:02am 1314360126

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 .....

by Kunst | 27th Aug 11, 8:22am 1314390129

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

by rastus1 | 27th Aug 11, 10:19am 1314397180

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!