I read the report and they are largely basing their short thesis...

I read the report and they are largely basing their short thesis on two factors.

1. Fake resumes on Zhaopin

I don't think any investor would assume Zhaopin or even the other CN job platforms to be 100% clean. Hence, the discounted valuation of ZP in SEEK's share price to begin with.

Plus, they are also giving a lot of weight to this college student who allegedly posted 11,400 fake resumes. Heck, it could have been 51jobs or Zhipin to stir up negative press considering how cut-throat China's job marketplace is!

There is a probability this might be the case but I definitely won't be shorting based on this thesis alone.

2. Valuation

Their valuation of SEEK is largely based on them cherry-picking the numbers they like. There are so many misleading statements in the report.

For example,
1. "Seek trades at 404x forward earnings." - They are using NPAT of $20m for FY2021 in their valuation. NPAT is one of the least accurate metric to value SEEK because they are reinvesting a lot of it back into the business (OES, ESV). Look at Amazon and shorting Amazon based on their PE.

2. "Seek has historically paid a dividend, giving the false impression that its business produces healthy profits and cash flows." - False. SEEK generated $304m in operating cash flow in FY20 and $373m in FY19 (pre-COVID). One of the most accurate way IMO to assess SEEK as a business is their operating cash flows because that is very close to free cash flow. They could cut capex and the business would still continue to generate cash.

3. "On paper, Seek appears profitable. But look closer and such paper profits were facilitated by dubious non-cash gains and questionable step-up transactions with related parties." - SEEK is profitable. They are using NPAT and making deductions of that to deem SEEK as unprofitable.

4. "Zhaopin is the foundation of Seek’s share price and, going forward." - Any long-term investor in SEEK would agree that ZP is largely discounted in the share price. Plus, who would value ZP at the same multiple as SEEK ANZ? No one.

Most importantly, based on their $7.20 ($2542m market cap) valuation, they are essentially valuing SEEK at 8.3x cash flow. If you take pre-COVID cash flow, the valuation would be 6.8x.

I think Blue Orca just chose the wrong company to pick on. If SEEK was a business which largely depended on ZP for their valuation and profits (for e.g. to raise capital at elevated share price), it would make sense but SEEK doesn't need ZP to do well.