With Q1 results season upon us we're collecting a lot of numbers from publicly traded real estate portal operators.
While we don't mind reading through the results of thirty-odd companies four times a year to bring you what's happening in the industry, it would be fair to say that some companies and some numbers are more interesting and relevant than others.
These are the five metrics we'll be watching closely throughout 2023 and why you ought to pay attention to them too...
Can they make it 50?
Since 2011 CoStar has been on a streak of 48 consecutive quarters with double-digit year-on-year revenue growth. Let that sink in... Not even during the worst of the COVID-19 lockdown did the Washington-based real estate powerhouse fail to grow by at least 10%.
As company CFO, Scott Wheeler joked in a recent earnings call, "who's counting?". Well, we're sure CoStar's new rival Zillow is.
All of that growth has allowed Andy Florance's company to amass $5.1 billion in cash, which he's currently weighing up how to spend in the M&A market, and led to CoStar being selected for the prestigious S&P 500 index last year.
Nobody could accuse CoStar of being a company resting on its laurels. The firm has a reputation for using its financial muscle to move in on new revenue streams (see table below) and since paying out $156 million to acquire Homes.com in 2021 CoStar and its outspoken founder have made no secret of wanting to knock Zillow off its perch and conquer residential real estate.
Another CoStar metric worth paying attention to is the traffic to Homes.com. After turning down a deal to buy U.S. #2 portal Realtor.com from Rupert Murdoch's Newscorp earlier this year the company's efforts have been directed squarely at getting Homes.com to 50 million unique monthly users.
The traffic has increased four-fold in two years from 6 million to 27 million in March 2023 partly thanks to some, allegedly, underhand tactics.
There are very few markets around the world where the vendor is responsible for paying marketing costs rather than the agent. Sweden is one of those markets and its dominant real estate portal Hemnet is reaping the benefits.
Since floating on the Stockholm Nasdaq two years ago, Hemnet has managed to double the amount of revenue it generates from each listing!
The only other vendor-paid market with a publicly traded portal company is Australia and its market leader, REA Group chooses to stay quiet about how much money it makes from the average home seller who only periodically has to pay attention to how much they are paying to market their house.
Of the few portals out there that make their unit economics public, Hemnet leads the way with steady year-on-year growth of 25% and over since 2019.
The portal's fundamentals are so strong that in its latest quarterly results, it managed to increase revenues by 6% despite an enormous 20% drop in the number of listings in the Swedish market. CEO Cecilia Beck-Friis was in no doubt about why her company was able to defy housing market gravity:
"This is a result of increased sales of our larger packages and of the value-added service 'Renewal', as well as continued work on pricing."
There is a company in China that is...
KE Holdings (aka Beike) is a remarkable company that we've written about in detail before. Apart from being all of those things, the Beijing-based behemoth is also a renovations leader with revenues from furnishing and fixing up homes set to break $1 billion this year.
The company's spectacular growth in the renovations industry was fuelled by its $1.2 billion dollar purchase of Shengdu Renovations in July 2021.
In a struggling Chinese real estate market, KE Holdings sees a huge opportunity in this adjacent revenue stream. The resources the company is putting into squeezing that lemon are on a bigger scale than Zillow's foray into iBuying or any of the myriad of portals around the world looking to crack the mortgage conundrum.
Former Head of International at KE Holdings, Brett Hartley Wilson explains the opportunity that the company sees in renovations
Imagine a real estate portal that has convinced more than 300,000 of its end users to pay a subscription fee for some extra services. A few years ago when portal businesses were thought of as essentially just shop windows, that would have seemed fanciful at best.
Over the last few years German market leader Scout24 has undergone a paradigm shift away from traffic and towards transactions. It has seen the company detach monetization from listings and think about customers in an entirely different way while changing how its users think of what a real estate portal does.
The shift in thinking is perhaps best represented by the portal's three consumer subscription products:
Charging a subscription fee for value-add convenience services such as online document management, income assessment, and discounts on surveys and appraisals is a lucrative business as well...
Other portal businesses that are having a hard time convincing their agent customers to pay more for listings packages with extra bells and whistles might want to pay attention.
Scout24 has managed to diversify its revenue streams and its customer base to the extent that selling listings packages to agents now represents less than two-thirds of its turnover. As the number of user subscribers increases the dependence on agents decreases.
The Murdoch-backed Australian portal operator REA Group has achieved part one of what it set out to do in India. It has overtaken the previous incumbents (99acres and Magic Bricks) to create a traffic market leader from its Housing.com portal.
It hasn't been cheap though.
In FY22 REA India lost A$35 million on an EBITDA basis and the last time the company declared its results in February (half-year results as per the Australian financial calendar) the business was operating at a -63% EBITDA margin.
Overtaking the incumbents in any market is no small challenge and monetary losses are to be expected. To the list of mitigating factors add the wobbly Indian housing market, a 200-employee hiring drive and a raft of product developments including Housing Edge (a suite of user subscription products including BNPL solutions).
REA India is far from the only real estate marketplace business in India losing money as it tries to build scale. At some point though the company will have to shift from growing the traffic and developing products to making money. It will be interesting to see how soon that point comes.