PTG, page-11

"I'm trying to read up as much as I can on this, but do you think there is any risk of RealEstate.com or Domain expand their offering into this space? I mean they must be offering real estate agents tools to create/manage/view etc their listings (sale & rental), so why not add the CRM portion to encourage agents to stay within one of the listing ecosystems."

@SteveSage,

Good question, and one which I too asked when I was conducting my research on the business as I tried to understand the inter-relationships between the estate agents, the seller/landlord, the buyers/tenants and the other related service providers (financiers, mortgage brokers/advertisers/valuers/inspectors/councils, etc.)

With respect, the aspect which I think you are overlooking is that the business models of RealEstate.com (REA) and Domain (DHG) are actually very different to that of Proptech (PTG):

While REA and DHG are in essence very large "billboards" where people involved in all things "property" - sellers, agents, banks, mortgage brokers, renovators, hardware companies, trades, etc. - advertise their services and products, PTG's service offering involves the actual day-to-day operational guts of real estate agencies.

This distinction might sound trivial, but in the way REA nd DHG conduct their business and interact with their estate agent clients, it is very significant.

As business models, REA and DHG are really forums for advertising.

As such, they treat all their estate agent customers equally, and at arms' length. This is very important for goodwill and for avoiding conflicts of interest.

But once REA or DHG start to offer the sorts of services, that PTG does, to their real estate clients, they start to get involved in the day-to-day operations of those clients, which in theory - assuming the PTG products are good - will impact the effectiveness and relative competitiveness of those clients, compared to clients who do not receive CRM and ERP services and products from REA or DHG.

So, in effect, REA and DHG would be competing with some of their clients.

That is never smart business practice.
Bad for reputation. Bad for goodwill.

As testimony to REA and DHG's disinclination to get involved in the sort of hands-on operational stuff which is essentially PTG's business model: if you weren't aware of it, DHG actually exited this space, by selling MyDesktop to PTG last year:




Finally, even if there weren't the conflicts-of-interest considerations, as discussed above, there is also the question of immateriality, especially for REA, which is a ~$21bn business, generating almost $900m in Revenue and $500m in EBITDA.

By contrast , PTG is an absolute minnow ($50m mkt cap, ~$15m in Revenue and $2m in EBITDA). PTG's total addressable market (A$100m in Au, NZ$16m in NZ and 100m pounds in the UK, so just shy of $300m in A$ terms) is large compared to where PTG is today, but it is teeny compared to the size of REA and DHG revenue opportunity sets.

Even at maturity in 7 or 8 years' time, I 'm guessing Revenue for PTG - based on the structure of the industry which PTG serves - might reach something like $50m or $60m.

This would translated into maybe $20m or $25m in NPAT, corresponding to Equity Value of around $300m or $350m in more than half a decade's time.

That's equivalent to a mere 1.7% of REA's current valuation today.

So, to answer your question:

PTG is not without risks; it has several risks it needs to overcome in order to create value for the owners of the company.

But REA or DHG entering PTG's turf is not one of those risks.

.