The founder and general manager of the internet auction site Trade Me, which has been sold to John Fairfax Holdings for $700 million, says the price the transtasman publishing group has paid is a fair one.
Some analysts question whether Fairfax has paid too much for New Zealand's biggest internet service, saying the country is a small market with limited opportunities for future growth.
Sam Morgan says he's not surprised at the reaction because there isn't much to compare Trade Me with in the Australasian market.
Morgan says there are lots of areas for growth within Trade Me, including selling more advertising and the creation of new trading categories.
But on the site's message boards, some traders say they expect to see price increases and more advertising, including pop-ups.
Profit down but Fairfax grows internet
Fairfax might have struggled to lift its first half profit but the group's internet operations continue to grow, with the news on Monday that it will buy Trade Me, for $700 million.
Fairfax reported a 4.6% fall in net profit to $A119.9 million for the first half of 2005/06 as its metropolitan newspapers endured a difficult advertising market.
The company also announced the acquisition of Trade Me, which accounts for more than 60% of New Zealand's web traffic. It has 1.2 million members who are expected to host 35 million auctions this year.
An additional $50 million will be paid if the company meets certain earnings targets over the next two years.
Morgan will continue to run the business he founded in 1999.
Fairfax's fall in profit included $A13.3 million in redundancy costs for 135 employees and a significant gain of $A4.4 million from AAP Information Services as a result of asset sales.
Excluding those non-recurring items, net profit increased by 5.2% to $A124.8 million - in line with analysts' expectations.
New Zealand publishing reported a 3.7% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) to $98.8 million.
"Fairfax New Zealand had good revenue and earnings growth, with strong gains in classified and display advertising categories, notwithstanding a slowdown in the New Zealand economy and the effects of the national election campaign," the company said.
The company did not provide a future outlook, but noted that trading in Australia in January and February had been mixed.
Chief executive David Kirk said booming internet revenues and continued growth in business publishing had resulted in solid profit growth.
"Fairfax Digital's outstanding performance - both financially and in competitive terms - shows it is a major force in online markets in Australia, and we intend for it to continue to enjoy significant growth in its news and classifieds businesses," Kirk said.
Fairfax Digital reported EBITDA of $A12 million compared to $A1.2 million in the prior first half.
But EBITDA in the Australian publishing business decreased by 3.2% to $159.9 million.
"Australian publishing costs were very well controlled," Fairfax said.
"Metropolitan newspapers' revenues declined as a result of difficult economic markets that affected advertising, particularly in New South Wales."
Fairfax announced a fully franked interim dividend of eight cents per share, up from 7.5 cents per share in the prior first half.
