Macquarie says Seek a buy, tips 29% EPS compound growth rate FY25-28

Broker Macquarie reckons Seek (ASX: SEK) can grow earnings per share 74% by FY 2027 as investments in artificial intelligence, new products, price hikes, and cost cutting drive the jobs website profits to new levels. 

Seek is Macquarie's top pick in the online classifieds space, ahead of market darlings REA Group (ASX: REA) and Carsales.com (ASX: CAR), which the broker rates neutral on valuation grounds.

On Thursday, Seek shares fetched $26.91 and Macquarie says it can reap the benefit of work to unify platforms that is now delivering operating leverage - where revenues grow faster than costs - to lift profits over the medium term. 

The operating leverage across its digital platforms means Seek's FY 2026 guidance is for adjusted profit growth up 32% to between $190 million and $220 million on revenues up just 10% to between $1.15 billion and $1.25 billion. 

Macquarie thinks this will translate into Seek's EPS climbing nearly 40% to 60 cents in FY 2026 to mean the stock trades on a forward price-to-earnings multiple of around 45 times, although that falls to 29 times forecast EPS of 93 cents in financial 2028. 

Seek's net debt to EBITDA stood at 2.1 times as at June 30 and Macquarie notes that risks to its profit growth forecasts include a general economic downturn in Australia, which would see employers advertise less jobs.

Venture growth fund and valuations

Seek's venture capital growth fund where it invests capital into early-stage tech and employment start-ups is also now a giant part of its business. 

As at June 30, Seek's share of the fund equalled $1.9 billion out of a total portfolio of $2.2 billion, with 80% of the portfolio's value in start-ups Employment Hero, Go1, Hibob and OES.  

Macquarie values Seek at $32.50 per share and said it has increased conviction around the execution of its strategy thanks to the results over the six months to June 30. 

The broker rates REA Group neutral on a $255 price target as it expects increased competition from new Domain-owner Costar now it has a competent management team. 

REA Group shares fetched $235.69 on Thursday and have comfortably doubled over the past five years. 

Carsales is tipped to have significant growth potential organically and via acquisitions in its overseas markets in Brazil and South Korea. At its full-year results, Carsales' management team confirmed its ambitions to deliver more growth for shareholders. 

"We are a growth business and as we discussed before, we've got so many opportunities in front of us." the auto group's management team said. "That doesn't mean we don't have operating margin expansion potential going forward, which we certainly still have, but we reserve the right to continue to invest in things to drive growth going forward."