Nine chair Catherine West.Credit: Dion Georgopoulos
Other than streaming service Stan, Domain is the only business inside Nine that is not structurally challenged. But unlike Stan, it is not faced with myriad competitors such as Netflix, Paramount or Disney, with more to come.
Rather, Domain is a duopoly – a digital real estate business that operates in a rich Western country whose population is obsessed with residential property and has one of the highest levels of home ownership in the world.
Its competitor, REA, has the leading market share and, not coincidentally, is the jewel in the crown of Rupert Murdoch’s News Corp.
Domain’s market share is a fraction of REA’s, whose margins are roughly double that of its rival. This difference is reflected in the values of the two companies. REA is valued at $31 billion while Domain is worth $2.7 billion.
(REA is valued using a far higher multiple of earnings. And if that multiple was applied to Domain, its value would be well ahead of CoStar’s current offer of $4.20 per cent and closer to $5.70).
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Technical as this sounds, it just means that Nine’s management has to be looking for a better price than the offer CoStar has tabled for Domain.
The positive spin on selling Domain (the second-best house in a street with only two houses) is that there is the opportunity for a new owner to renovate – which means there is an upside for any buyer who reckons it can run the company better and pinch market share from REA.
Domain may not be firing on all cylinders, but it still posted a 14 per cent jump in revenue for the half-year to December and improved its “for sale” listings for the period by 7 per cent.
Within its stable of Nine siblings, Domain was one of the star performers. Nine television’s earnings fell by 35 per cent, publishing fell 4 per cent (but did enjoy a healthy growth in subscriptions). While the radio business put in a good performance, its overall contribution to profit was only $5.7 million. Stan performed well by leveraging the Olympics coverage to add more subscribers and grow its revenue per customer to deliver a 16 per cent lift in profit.
To be fair, Nine’s traditional media businesses have been hit by a cyclical downturn in advertising, and have had to tackle a long-term structural decline that began decades ago as people stopped buying newspapers and watching linear television.
During the old Fairfax days, it dabbled in digital companies such as Stayz and online shopping site Trade Me to help fund the disrupted newspaper business. It has taken more than a decade, but most international publishers – including Nine’s publishing arm, which owns The Sydney Morning Herald, The Age, and The Australian Financial Review – have stabilised earnings from their old mastheads by moving to a subscription-based model while taking out costs.
The sale of Domain would deprive Nine of one of its growth businesses, but the return would also leave it debt-free, give it a financial buffer to deal with the ups and downs of its traditional businesses, and still have plenty left over to reward shareholders with a tasty capital return.
So again – no pressure!
