Fund managers, page-1505

Like a lot of investors, I struggle to understand REA's valuation.
In fact, it may be explained by one simple element : how far REA can increase its prices ?

We know that REA is increasing its prices almost every year (except during the covid pandemic).
Despite this trend, their prices still represent a limited part of the cost of a real estate transaction.
As discussed with @JoeGambler, the cost of REA+Domain probably represent around 25 % of the cost of selling in Sydney and Melbourne.
Based on the price of the property, it represents less than 0.5 % of the average price.

If the 2 companies continue to increase prices on the same trend (10 % to 15 % per year), it could represent, in 10 years, an amount closer to the agent commission.
In that case, the total cost to sell a property in Australia would get closer to the cost in countries like US or France, where it is around 5 % of the total price.
If this total cost of selling is getting too high for some property sellers, I can see a scenario where they would decide to keep just one advertiser, which would be REA in most of the cases, giving its very large lead in the market (number of visits on its website = 3 x number of visits on Domain).

Such an increase for the price per ad may seem high in particular for such a long period, but it is in line with the company's past.
According to a note of Blackwattle Investment Partners in Livewire (14/5/24), the revenue/ ad for REA has increase from 80 $ in 2011 to 1,150 $ in 2023, which corresponds to an increase of 25 % per year.