US struggle ahead for REA Group

US struggle ahead for REA Group

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Years spent jostling in the Aussie property listings market may not help REA Group take off in the US following its recent purchase of number three listings heavyweight Move with News Corp.

REA Group last week announced its intention to purchase a 20 per cent stake in Move, with News Corp taking an 80 per cent share after paying US$950 million.

Move is responsible for property portals, and Move has the exclusive rights to operate, the official site of the National Association of Realtors.

In a previous interview with Real Estate Business, REA Group chief executive Tracey Fellows said the group’s investment in Move was done to provide an entry point to the US digital real estate market, which is currently behind Australia and is only now moving online.

“It is a very attractive market given its size, the proportion of real estate advertising yet to go online and recent industry consolidation,” Ms Fellows said.

Following the purchase, US-based investment research company Morningstar said REA Group and News Corp will have a difficult uphill struggle to defend and grow the audience of against incumbent Zillow.

However, a combination of a strong management team, according to Morningstar, combined with increasing overseas interest and a desire to implement a paid subscription model will give the business a serious leg-up in the US and international market.

“REA Group aims to grow the digital component by marketing directly to vendors the potential benefits of a premium listing, which can increase the visitation to a listing by 15 times during a 30-day period,” the Morningstar report said.

“This extra revenue comes at little extra cost and will further accelerate returns and forecast an increase in operating margins from 40 per cent to 50 per cent during the next three years.

“The company continues to review possible offshore bolt-on acquisitions to further enhance its long-term earnings growth profile.”

Director of realestateVIEW and chief executive officer of the Real Estate Institute of Victoria, Enzo Raimondo said the US market may not easily lend itself to the Australian approach of paying for premium search listings.

Mr Raimondo said while there are some subtle, and some large, differences between the US and Australian markets, it has clearly been REA Group’s strategy to branch out of Australia since it has recently established a presence in Malaysia, Hong Kong, Italy Luxemburg and France. However, the US is a different kettle of fish altogether.

“Our digital smarts are probably ahead of the US and Europe in the property listings space and the new entity may get traction, but I think it is going to be a more difficult market than they feel – the US has around 16 times the population of Australia, multiple listings and a lot of independent contractors and part timers without much vendor-paid advertising,” Mr Raimondo said.

“The US has a strong multiple listings bureau and lots of transactions are open to the whole industry for agents to sell, and in terms of premium listings, I don’t know if US agents would like the idea of giving away their revenues to upsell products because advertising is usually paid for by the agent.

“I suspect Move, which manages industry site, could see a combination of Zillow and Trulia becoming the big competitor and needed another partner… I don’t know if their strategy is to buy, disrupt or compete but clearly they have a strategy to get outside of Australia.”

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