This is my investment thesis for this stock pros 1. Leader and has a moat. I don't see anyone just advertising on Domain, but what is happening is most advertising on both. There is no one even distant third.
2. I am not expecting the housing prices to retrace a lot, but high growth will certainly disappear but it will still grow. In that context, the percentage cost for advertising in REA goes down and they can increase the price without any consequences. (helpful at the margins)
3. I do think India offers a massive opportunity because everything in the digital space is in its infancy. At some stage, you can bring some operational efficiencies with relatively cheap labor as well.
4. Their financial services income has taken off potentially opening up a new avenue
Cons 1. Still this is expensive: PS 13.85, PE close to 40. I always look at Google's PS which is at 7 and, for me it is the number one business. I don't know why Australian companies command a premium, but they do.
2. This is in the wrong space (Tech??) and momentum is down.
3. They do have some debt although it is easily serviceable.
4. I found it is surprising they have broken even in rental revenue. I thought this would be the saving grace as people would be forced to advertise more in a renters market.
5. The USA market is much competitive and, despite Zillows kicking some own goals lately, it is a formidable opponent.
6. Glad they have hedged the currency as I am expecting the dollar to be strong and AUD to maintain parity because this is a commodity currency. However, other developing currencies would be struggling over the next few months. Maybe it is a good thing if REA wants to invest money.
Still I expect around 120 this would be a reasonable buy. My 2 cents.
REA Price at posting:
$126.48 Sentiment: Buy Disclosure: Held
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