Just months after shutting down its education broking business, SEEK (SEK) has upped the ante on education again, taking majority ownership of Online Education Services (OES). SEEK's decision to go deeper into tertiary education reflects a deeply ingrained view in SEEK management that the opportunity in education is as big as it is in employment, and that in the online world the two go hand in glove. Whether full ownership of OES is just a nice little earner or a transformational deal depends on SEEK's ability to convince at least two other major universities to become OES partners. OES has plenty of capacity – but it needs a lot more content (degree programs) to become the earnings powerhouse it could be.

Cash generator

Since foundation in 2012, OES has been a significant cash generator. If the business does nothing but chug along with single-digit revenue growth, it will at the very least repay SEEK's incremental investment within 5-7 years. The downside scenario looks less risky than many of SEEK's former forays into non-core business.

Near-term risks to SEEK's earnings outlook include:

• a softening of the Australian labour market;
• slow take-up of the Premium Talent Search (PTS) product by major recruiters;
• further unfavourable moves in exchange rates; and
• sharp downturns in Chinese, South East Asian or Latin American economies.

Investment view

SEEK offers investors exposure to the growth of online employment advertising and services and education services in Australia, Asia and Latin America. Due to heavy investment in business development, new products and innovation, we believe the company is on track to deliver many years of double-digit earnings growth.

As the company trades below our share price target, we retain our Add recommendation

Contributed by Ivor Ries, Senior Analyst, Information Technology, Online Media. Original blog here: (VIEW LINK)