Competing property portals in Australia go head to head

by Alistair Helm in

NZ may have an impasse between agents and Trade Me - however across the Tasman it looks to be heading for an outright war between the two leader property websites!

The Australian digital property marketing space is a heavyweight boxing ring with the incumbent REA Group (majority owned by News Corp) facing off against a newly resurgent Fairfax owned Domain. The clash is about to get elevated to a whole new level given the email sent out by the CEO of Domain, Antony Catalano calling on agents to pull the plug on REA Group.

The email has been sent as an open letter to the real estate industry and pulls no punches. Stating that “If Australia's real estate industry had any doubts that it is fuelling its own demise it need look no further than the reality behind REA's latest round of price hikes.” This will sound familiar to NZ real estate agents if you were to replace REA with Trade Me, however we have yet to hear this level of rhetoric from

The argument expounded in the email is nothing new and is something that I have often stated over the years - that the headline traffic numbers of websites bear no relation to the scale of the industry in terms of genuine buyers. Catalano states that the 23 million visits made to the REA platform per month bares no relation to the monthly property sales of 33,000, just as a monthly traffic to Trade Me Property of around 2 million unique visitors a month bares no relation to monthly property sales in NZ of 7,000.

Real estate online listings appeal to a far wider audience than buyers alone and always will do - its a fact and therefore the key determinant of true value delivery by a property portal is leads - quality leads that turn into buyers, as that is what agents want.

The email is emotional and colourful as is the writer who has quite a reputation in the industry in Australia. Antony Catalano was at one time the top executive for Fairfax Newspapers in Victoria in the real estate advertising business before leaving and starting up a rival publication which in the space of a few years came to virtually destroy the Fairfax magazine and driving Fairfax to acquire 50% of Catalano’s business.

The email is a carefully timed piece of incendiary media marketing. REA Group have just announced their latest round of price increases of as they like to present it - a market based pricing which whilst still based around a monthly subscription is edging ever closer to the per-listing fee structure implemented by Trade Me Property. In Australia these revisions to REA’s pricing policy are an annual event and always generates enormous vitriol amongst the industry but somehow the industry ends up paying the invoice and another year rolls around.

The other critical timing opportunity Catalano has played to, is the transition from the outgoing CEO Greg Ellis to the new CEO Tracy Fellows who although announced last week is not due to start in the role until September, so the interim CEO will be attending to this media barrage.

The stakes are high in the Australian real estate digital marketplace and the ego’s no less so. REA Group with its primary interests in the Australian market with the websites of and also owns websites in Italy and Luxemborg as well as Hong Kong, employing more than 700 people - its recent full year revenue was A$336m delivering an EBIDTA of A$164m giving it a capitalised market value of A$5.8bn. Domain by comparison has a revenue from Australian operations of the residential website of and the commercial site of generated revenues of A$141m and an EBIDTA of A$45m.

It seems somewhat duplicitous for Catalano to challenge the industry to boycott REA as he trying to take the high ground as some white-knight to defend the interests of the industry, his agenda is as clear as day - to maximise the shareholder returns of the business he is charged with running.

It will be interesting to watch from the sidelines in NZ as the aspiration for Domain is to seek an IPO in the coming year or so as a further cash injection to support the ailing print media business of Fairfax - wasn't that the purpose of Fairfax selling Trade Me though!?

Trade Me now free from the Fairfax shackles has significant upside potential

by Alistair Helm in

Investor Relations – Trade Me Group Ltd.jpg

This blog is primarily about property; the property market and real estate, although at times I allow my mind to wonder and consider and analyse related areas. This post is just such an exercise.

I followed with interest over the weekend the decision by Fairfax to sell down their remaining stake in Trade Me – in my mind a decision akin to “selling the engine to pay off the car loan" as I tweeted !

I think the winner is Trade Me, unshackled from its rudderless parents now free to demonstrate the online powerhouse it can be – the question though is how big could it be. Some of the recent articles have commentators pouring cold water on upside potential and sensing (judging) that its “trading position may not be so great”.

Now I should be very clear here, I am not a financial analyst, I do not own shares in Trade Me and I would not recommend, nor take anything I say hear as investment advice.

I do think Trade Me has a significant upside – the current share price is $4.02 as of today gives it a market cap of $1,591 million – a very healthy premium to the $700m Fairfax paid for the company in 2006. Some of the recent articles have speculated that the recent high of $4.45 back in late October giving the company a valuation of $1,761 million was a sign of the share price "running ahead of itself". I think in time the market cap could well exceed $2 billion in today’s money.

On what basis can I make such an assertion? I have simply looked at some benchmark companies in an area I know a lot about – real estate.

Trade Me Property is a very successful part of the company – it dominates the viewing of online property with over 1.5 million unique visitors a month and an average on sit duration of over 20 minutes. It's not a monopoly as is very successful and holds a credible #2 position, however it would be a brave property seller in NZ today who did not ensure that their listing was on Trade Me Property.

Benchmarking the online property market is fairly easy and my two examples would be in Australia (Part of , well about 90% of the REA Group) and Rightmove in the UK. Both are listed companies and therefore publicly accessible information.

The Australian real estate market is more advanced in online than NZ, there around 30+% of media spend is online as compared to about 15% here, in the UK it is around 20% although the real estate market is less advertising focused as commissions are lower and this results in a lower media spend. Both of these companies are more succesful at EBIDTA margin than Trade Me delivering in the case of Rightmove 70% levels.

Using a very simple calculation method based on comparable populations and local currency conversion; the current REA market cap of A$2,289m equates to a NZ$557m real estate online business in NZ terms. Rightmove with a market cap of £1,523m equates to NZ$206m real estate online business in NZ terms. This reinforces the point made earlier about the powerhouse that REA is in the Australian real estate market. For this reason I have applied a weighting factor to arrive at a final weighted price for Trade Me with an up weighting of REA by 26% and a down weighting of Rightmove by 52%.

The table below summarises this data:

Trade Me benchmarking Dec 2012 #1.jpg

Whilst benchmarking, I examined two other specialist category sites in Australia, the listed Australian car trading site of and the recruitment site of Seek. Both are dominant players in their respective categories and thereby provides a category benchmark for both Trade Me Motors and Trade Me Jobs. Trade Me dominates the NZ car sales market, and is fighting a strong battle with Seek in the jobs market. The current market cap of is A$1,754m which equates to a NZ$427m car sales online business in NZ terms. I see as very similar in its sector as a benchmark to REA Group and therefore have developed an up weighting of 12%.The current market cap of Seek is A$2,343m which equates to a NZ$570m jobs online business in NZ terms. In principle whilst Trade Me is not as dominant as Seek in jobs there is no reason to down weight it's representation in evaluating a weighted valuation for Trade Me so I have up weighted it by the same 12%.

Now to determine how each of these sector specific benchmark companies contributes to an overall estimation of the value of Trade Me I have examined what I see as the current split of business between the core sectors of Trade Me – Property, Jobs, Cars and Classified / Retail. At this time I see the split as 16% for Property, 10% for Jobs, 29% for cars and 45% for classified. In future I see this changing. The future representation is also shown in the table below.

Trade Me benchmarking Dec 2012 #2.jpg

To come up with a overall calculation for the value of Trade Me I have taken the future split of business and applied this to the sector benchmark valuations to then come up with an overall valuation of just over NZ$2.3 billion based on the weighting. It's not the most scientific analysis but I think it is interesting.