The sceptics were yesterday busily suggesting that John Fairfax had
gone over the top in paying $625 million for the Trade Me auction,
dating and classifieds web site in New Zealand, and the tepid market
reaction supported the concern.

However, unlike News Corp’s $US1 billion-plus internet splurge on
MySpace.com and IGN, Trade Me is solidly profitable and forecast to
keep growing exponentially. The year to 31 March 2005 produced
earnings of $NZ12 million, which is tipped to hit $NZ26 million in
2005-06, $NZ45 million in 2006-07 and then $NZ60 million in 2007-08.

These sorts of numbers are similar to the growth enjoyed by Seek.com,
which has delivered a capital gain of more than $150 million for PBL
after Fairfax foolishly overlooked an investment opportunity under
former CEO Fred Hilmer.

Fairfax CEO David Kirk and chairman Ron Walker have been true to their
word in promising to get far more aggressive in the internet space, but
Trade Me doesn’t look that expensive given the profit projections and
low operating costs, with only 48 staff and minimal capital investment
required.

In fact, the Trade Me deal makes PBL’s decision to sell its half share
in E-bay Australia for $129 million three years ago look a little
premature. Sure, PBL booked an easy $100 million profit, but the better
move perhaps would have been to stay in the venture and tackle the New
Zealand market. It makes you wonder if PBL will happily walk away from
Seek with a quick profit as well.

After almost ten years of juggling, there is no clear winner in the
battle of old media to dominate the internet. News Ltd has clearly been
slowest to act but has made good money on its investment in Realestate.com.au.

The Packers blundered by splurging about $800 million on the old media
Hoyts cinema business in 1999 and also failed to deliver on their
much vaunted internet gaming strategies. While PBL has cleaned up on
E-bay and Seek, this only constitutes a combined profit of $250
million, well below the $500 million they dropped on One-Tel which was
part of the whole dotcom/telco boom of the late 1990s.

Seven and Ten have done nothing of note on the internet except burn a
few tens of millions, while Fairfax was right not to beat Telstra to
the Trading Post prize, as that business is now struggling and they appear to have paid too much.

Fairfax didn’t cash in from the partial float of f2 like PBL did with
ecorp, but they do now have an impressive presence on the web that
gives them a solid platform for growth, especially in New Zealand where
the $1.1 billion acquisition of News Corp’s newspaper and print
operations has so far also proved to be a bonanza.

Peter Fray

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