The SEEK Limited (ASX: SEK) share price plunged 6% yesterday after a shorter claimed that SEEK was worth less than investors thought.
What happened?
According to reporting by the Australian Financial Review, a short seller called Blue Orca has said that Zhaopin, SEEK’s Chinese business, is full of bogus job listings to make it appear as though there’s user growth. It also reportedly said that its valuation is “vastly inflated”.
Obviously the market didn’t like the sound of that. That’s why the SEEK share price was down more than 10% in early trading, which coincided with the overseas selloff during the night. There have been various other ASX short attacks which have led to selloffs. Some were only temporary major selloffs like WiseTech Global Ltd (ASX: WTC) and the attack on Rural Funds Group (ASX: RFF).
Part of the claims is that Zhaopin isn’t the market leader in China and pays people to put their resume onto the portal. Blue Orca said that SEEK isn’t generating any growth and is relying on acquisitions for growth.
The short report included this passage: “Rather than valuing Seek as a fast-growing online recruiting platform, we value Seek for what it is – a slow or no-growth platform whose core business is shrinking and which carries a dangerous amount of debt.”
Regarding the allegation that the job listings are bogus, the shorter wrote: “Companies we called about their job postings on the website even stated directly that the posts were fraudulent. Our due diligence also uncovered a whistleblower claim by a Chinese college student alleging that Zhaopin pays people to submit fake resumes.”
SEEK went into a trading halt after discussions with the ASX. It intends to make a full response to the short attack. However, it said that it’s “in compliance with its continuous disclosure obligations and remains confident of its long-term outlook”.
Summary thoughts
These are certainly serious allegations. Who knows if there’s truth to the claims? If there are some false advertisements, it could be a immaterial number that doesn’t ultimately change the valuation. Or there could be a lot.
SEEK has a good market position in Australia, but its profit hasn’t been growing recently. For that reason, I think it may already have gone through the biggest phase of its growth so I’d rather look at other ASX growth shares like Pushpay Holdings Ltd (ASX: PPH).
