Domain Holdings (ASX: DHG) – predominantly known as a leading property and service business where individuals list homes for sale – announced an acquisition of Real Time Agent operator Bidtracker Holdings. Following the announcement of this deal, Domain saw a 14c share price appreciation, representing a 4.5% increase over the day. This is fairly positive signs for a firm that’s traded fairly flat over the last six months, particularly with the property market beginning to pick up. But is this really going to help drive growth for the company?
Importantly, Bidtracker Holdings has 3 main products:
- Real Time Authority – which provides execution of the agreement between real estate agents and vendors
- Bid tracker – allowing individuals to record individual bids and auction results.
- Real Time Contracts – a digital sale contract process regarding settlement dates and deposits.
We know that domain derives approximately 75% of its revenue – and around 80% of its EBITDA – from its core digital operational line, which is what Bid Tracker holdings most accurately aligns with. The main benefit of the deal will be “delivering technology that streamlines the online and offline property process”. In this case, the majority of benefits look like they will be derived from cost efficiencies due to reducing admin work. In a fairly weak property market – with national new listings down 14% from 2019-20 - it certainty feels that cost efficiencies will be the way to go for Domain to continue to create shareholder value, especially when the already have 90% market penetration.
However, the results of this acquisition are very much to be seen. Even with Domain’s main rival, REA group, reporting a 14% drop in earnings on Friday due to market conditions, REA remains a market leader and is still growing at scale. While this acquisition is likely to have positive cost efficiencies, this doesn’t appear to have any tangible impact, perhaps besides consumer stickiness, on Domain’s ability to combat REA’s dominance in the market.
With REA’s EBITDA growing 8% from FY18-19 compared to Domain’s 15% drop, it could be argued that this acquisition won’t help Domain’s long-term goal of growing revenue and market share in the property listing industry.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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