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Boost in premium product sales helps offset Domain's $156m loss, says Morningstar

Emma Rapaport with AAP  |  15 Feb 2019Text size  Decrease  Increase  |  
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A drop in listings in Sydney and Melbourne has weighed on Domain's first-half profit but Morningstar says a boost in premium product sales helped the property classifieds business deliver a slightly better than expected result.

Domain's residential division delivered a 10 per cent increase in depth revenue for the first half, driven by increased sales of premium products, while overall division revenue increased 8.6 per cent to around $94 million. This comes despite a multi-million-dollar non-cash goodwill impairment payment.

Domain’s shares, which hit an all-time low of $2.08 on Thursday, have since soared 45 cents, or 21.29 per cent, to $2.54 by 3.30pm on Friday afternoon.

Domain result earnings

This however is still down on the highs the company reached between August and October last year of about $3.50.

Morningstar senior technology analyst Gareth James says increased sales of premium products – which offer sellers more ad space to show off their property and lure more online buyers – is helping Domain earn more from the same and further opportunity awaits should the listings market improve.

On an underlying basis, Domain's first-half profit slumped 14.2 per cent to $21.1 million. Revenue increased 0.3 per cent to $183.9 million, while earnings before earnings before interest, tax, depreciation and amortisation fell 7.1 per cent to $52.7 million.

The fall in listings in Sydney in Melbourne forced Domain to declare a $178.8 million non-cash goodwill impairment. This pushed Domain to a total first-half profit loss of $156.4 million.

Auction volumes have fallen 20 per cent in Sydney and 19 per cent in Melbourne while nationally, Domain's new listings have fallen by low-to-mid single digits.

Despite the first-half loss, Domain chief executive Jason Pellegrino was upbeat, saying the company was “supercharging existing listings”. "Our strategy is building a customer-centric Australian property marketplace," Pellegrino said.

"We are doing this by supercharging our existing listings business and growing and extending our ability to deliver a broader range of solutions directly to consumers.

"In the context of current property-market cyclicality, Domain delivered a solid performance in the half, with growth in average revenue per listing."

Domain said its demerger from Fairfax in October 2017 continued to influence its net result and did not reflect the underlying health of the business. Fairfax became part of Nine two months ago.

"The comparative statutory result is not representative of the underlying performance of the business due to the business transfer," the directors' report stated. Domain reported statutory revenue was up 65 per cent to $186.3 million. 

Revenue from Domain's consumer solutions division increased 33.9 per cent, reflecting growth from Compare and Connect, and early revenue from Domain Loan Finder and Domain Insure. Print revenues declined 24 per cent.

Domain said listing volumes had continued to fall in the first six weeks of the second half, and that the late timing of Easter would affect the autumn selling season.

Domain hopes an advertising deal with majority shareholder Nine will help it weather the market slide.

"Nine has a broadcast audience of 19 million people that they reach each month, a digital audience of roughly eight million people that they reach, of which close to five million of that audience are not Domain users," Pellegrino said.

"So we see a significant upside, but we are taking this cautiously."

Morningstar’s James acknowledged broader concern among some investors that Domain could be operating in a winner-takes-all market with its significantly larger competitor REA Group (ASX: REA) but says this is unlikely.

"We think the Nine-Fairfax merger is helping to increase Domain's profile," he said. "Awareness in this market is vitally important to success."

While Domain announced it would pay an interim dividend of 2 cents per share, fully franked, Pellegrino flagged an expected return to a 4 cent dividend at the end of the financial year.

. Emma Rapaport is a reporter for Morningstar Australia.

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