Home / Leaders / Battleground: REA Group vs. Domain

Battleground: REA Group vs. Domain

Leaders

REA Group Limited (ASX: REA) and Domain Holdings Australia Ltd (ASX: DHG) absolutely dominate the Aussie property listing space. But how come one is much bigger than the other?

  • Let’s take a look into why it’s a David and Goliath battle.

    REA share price

    Source: Rask Media REA 2-year share price chart

    DHG share price

    Source: Rask Media DHG 2-year share price chart

    As you can see, both companies have experienced the same trend over the last two years but REA Group is much bigger. Why, though?

    The first-mover advantage

    REA Group’s first-mover advantage has made it the most popular website and marketplace to find real estate online.

    A key benefit of being first-to-market is the opportunity to create a growing network effect. If a business builds the first marketplace and users value it, more people will come.

    It’s like what Kevin Costner thinks in the film, Field of Dreams, “If you build it, they will come“.

    Once REA group built its reputation as the go-to place for real estate, it was easier to attract more customers and business partners.

    Some famous examples include Paypal Holdings Inc (NASDAQ: PYPL) and Airbnb (NASDAQ: ABNB). If you look closer to home, Seek Limited (ASX: SEK) and Carsales.Com Ltd (ASX: CAR) still dominate their respective markets.

    REA Group has been around since 1995 and still smashes its peers in terms of web traffic. Just have a look at the below competitive position map based on web traffic and organic keywords.

    Source: SEMrush

    REA Group gets 14.4 million visitors per month, which pales in comparison with the next best competitor. Domain only gets around 252,000 in web traffic per month.

    Not only this but REA Group’s web traffic keeps on growing, as shown below.

    Source: SEMrush

    Gross margins and revenue segment

    If you briefly scan the key revenue segments for each company, you will notice REA Group’s operating segments are 100% digital.

    Domain, on the other hand, retains its newspaper and magazine publishing arm, which generated around 10% of its FY20 revenue.

    As a result, REA Group has much higher gross margins, ranging between 70% to 78%, compared to Domain’s gross margins of 56% to 60% over the last four financial-year-ends.

    Higher gross margins mean more money flows down to the bottom line, generating more free cash flow.

    REA Group has been able to consistently dominate its peers because of its ability to reinvest capital into the business, especially its digital product offering. If you do a quick search of both the realestate.com and domain apps, real estate.com wins out on both ratings and the number of reviews.

    Will David win?

    It’s hard to see David beating Goliath in this one.

    In saying this, Domain doesn’t necessarily need to beat Goliath as long as it generates value for shareholders.

    In such a large total addressable market, there is still a long runway of growth for both businesses.

    This comparison illustrates the potential benefits a business gains from taking pole position. However, investors should bear in mind that this is not always the case.

    Investors should also consider other aspects of the business when making an investment decision.

    Information warning: The information in this article was published by The Rask Group Pty Ltd (ABN: 36 622 810 995) and is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.




    Print Article

    Related
    Franklin Templeton wins big as fund manager award winners revealed

    The 35th iteration of the awards saw Franklin Templeton Australia beat out fellow finalists BlackRock, Lazard, VanEck and Macquarie Asset Management to take out the Fund Manager of the Year award.

    Staff Writer | 23rd Jun 2023 | More
    Woolworths, Northern Star recognised for governance at 2023 ASA Awards

    The Australian Shareholders’ Association recently held its second annual ASA Awards in recognition of best corporate governance, honouring Woolworths Group for its shareholder communications and Northern Star Resources for improved governance standards.

    Staff Writer | 12th May 2023 | More
    Reporting season puts CBA and BHP in the spotlight

    See what the brokers say about Australia’s largest bank and mining entity this reporting season.

    Ishan Dan | 10th Aug 2022 | More
    Popular