How major property portals think about mergers and acquisitions

How do large residential real estate portals around the world think about investments and acquisitions? What types of companies do they look to acquire and how do they incorporate them?

As the head of strategy at New Zealand’s leading property portal, Trade Me, I dealt with these questions on a daily basis. I hunted for new lines of business, scoured the landscape for investment and acquisition opportunities and then executed the deals in my four years at the firm. I also developed an intense interest in how similar firms in other countries went about the same ventures.

Property portal models differ around the world, but in general they aggregate real estate information, allowing consumers to search for homes to rent and buy.

Scratching my Entrepreneurial Itch

In January, I left Trade Me and moved back to the U.S., my home country. With these questions still swirling in my head and my curiosity kindled, I decided to investigate. So I hit the road to find out how portals around the globe deal with growth, particularly around investments and acquisitions.

My journey included interviewing and studying the following portals:

  • Rightmove and Zoopla, the largest and second-largest portals in the U.K., respectively.
  • Zillow Group, the U.S.’s top player.
  • REA Group, Australia’s leading portal.
  • And, of course, Trade Me, New Zealand’s leader.
 
Based on the last full year’s reported numbers and converted to U.S. Dollars. Sources:  Rightmove ,  Zoopla ,  Zillow Group ,  REA Group ,  Trade Me . *Adjusted EBITDA numbers. ^It’s difficult to make apples-to-apples comparisons on portal profitability. For example, Zillow Group reports “Adjusted EBITDA Numbers” on a non-GAAP basis, which can be misleading as  this article points out . Zillow's actual EBITDA result is around a $68 million dollar loss.

Based on the last full year’s reported numbers and converted to U.S. Dollars. Sources: Rightmove, Zoopla, Zillow Group, REA Group, Trade Me.
*Adjusted EBITDA numbers.
^It’s difficult to make apples-to-apples comparisons on portal profitability. For example, Zillow Group reports “Adjusted EBITDA Numbers” on a non-GAAP basis, which can be misleading as this article points out. Zillow's actual EBITDA result is around a $68 million dollar loss.

 

I hypothesized that I would find a common thread in the strategies of each firm. Surely they must evaluate investments in generally the same manner. I was excited to learn what each considered the “right way.”

The Journey

Rightmove is the leading property portal in the U.K. It reported 2015 revenues of $250.9 million and has a market cap of $5.1 billion.

The 16-year-old firm dominates the U.K. market with a massive homebuyer audience built on organic search traffic. In 2015, its site received 17.5 billion pageviews, according to the firm. It makes the bulk of its money by charging agents and developers to list homes.  

Rightmove’s mergers and acquisitions strategy sets it apart from all other major portals in the world: it simply doesn’t do them.

Instead, it focuses squarely on being the U.K.’s best place to list a home for sale. Period. It invests in that goal alone, year after year, without spending much attention on other business opportunities.

It plans to maintain that singular focus as it aims to raise the average monthly revenue per advertiser (ARPA) closer to its target of approximately £2,500, an amount consistent with newspaper advertising in 2007, the firm explained in its 2015 annual report. Its current ARPA stands at £750.

Zoopla, on the other hand, has the most aggressive M&A strategy I found among the major portals.

Driven by its entrepreneurial CEO Alex Chesterman, the U.K.’s No. 2 property portal aims to be the one-stop shop for home buyers and sellers. Its tagline could be: “Whatever you need, you can find it at Zoopla.”

The 8-year-old firm has a much smaller audience than Rightmove. Rightmove accounts for approximately three-quarters of the time consumers spend on the U.K.’s top four real estate portals, according to comScore data cited in Rightmove’s 2015 earnings report. Zoopla is second with approximately 20 percent of the attention.

London-based Zoopla has a market cap of $1.7 billion and 2015 revenues of $140.4 million.

The firm makes aggressive investments, ranging from seed investments in startups like the one it made in property repair reporting software platform Fixflo to nine-digit acquisitions of mature businesses like its purchase of the home-related services cost comparison digital platform uSwitch.

In some cases, Zoopla folds its acquisitions directly into its core business; in its smaller investments, it takes a more hands-off approach.

The U.S.’s top player, Zillow Group, is a giant. It has a market cap of $6.0 billion and reported $679.9 million in 2015 revenues.

The portal conglomerate emerged in February 2015 when Zillow -- already the market leader -- acquired its top U.S. competitor, Trulia, for $2.5 billion in stock.

The 12-year-old firm’s M&A strategy is more defined than Zoopla’s. Zillow Group only makes full acquisitions; it doesn’t bother with seed investments or minority stakes in new ventures.

It acquires businesses to build audience, plug service gaps and prepare for new opportunities in the residential real estate space. For example, it acquired two New York City portals in recent years to grow presence  in the lucrative Big Apple market: the rental site Naked Apartments for $13 million in February of this year and the portal StreetEasy for $50 million in 2013.

It’s also made big acquisitions to provide better tools to its real estate broker and agent advertisers, epitomized by its $108 million July 2015 acquisition of digital transaction management platform dotloop.

From an outside perspective, it appears Zillow Group practices a hands-off approach to managing its acquired companies.

Most brands remain intact post-acquisition. Although part of the same team and under the aegis of Zillow Group executives, the acquired firms don’t appear to experience intense corporate oversight.

REA Group, a subsidiary of global media giant News Corp, runs Australia’s dominant portal, realestate.com.au. REA Group also runs a suite of portals in other countries (see below).

REA Group has a market cap of $5.8 billion and FY2016 revenues of $488.2 million.

Portal M&A strategy
Rightmove No activity. It’s focused squarely on organically building its consumer audience.
Zoopla Aggressive and varying, ranging from seed investments in startups to full acquisitions.
Zillow Group Aggressive, but solely focused on full acquisitions to build audience and tools for its customers (agents and brokers).
REA Group Aggressive, with a strong international focus using full acquisitions to enter new markets.
Trade Me Strategic. Makes investments and acquisitions to build service offering.

Along with Rightmove, investors see REA Group as a poster child for property portal success because of its clear market-leading position and its ability to effectively monetize its agent relationships. Both businesses are cash-spinning machines.

While Zillow Group and Zoopla built audience by acquiring domestic businesses, Australia-based REA Group has an international scope. It made early plays in Europe -- Italy, Germany, France and Luxembourg -- with mixed success, and most recently took a minority stake in realtor.com operator Move Inc. in the U.S.

REA Group finalized its $414 million acquisition of Malaysian portal iProperty in 2015, giving it a strong Southeast Asia presence. Its global aims are clear.

REA Group operates real estate sites in 11 countries: Australia, Italy, Luxembourg, Germany, France, Malaysia, Singapore, Hong Kong, Macau, Indonesia and Thailand.

Trade Me operates a portfolio of classified and marketplace businesses in New Zealand, including the country’s leading residential real estate portal Trade Me Property. As a group, Trade Me has a market cap of $1.5 billion and reported FY2016 revenues of $158.7 million.

Trade Me has a flexible investment approach. In my four years there we made minority investments -- like the one we made in the data valuation company Homes.co.nz -- and outright acquisitions.

The degree to which we integrated acquired companies varied.

Based on personal experience of selling my own technology company, the video game development firm Agora Games, in 2009, I prefer to give acquisitions as much autonomy as possible. This became our default position. However, in some cases we fully integrated acquisitions into existing business units.

Because Trade Me Property dominates the New Zealand market, our M&A philosophy centered on adding more services to our offering rather than expanding audience. For example, Homes.co.nz moved us into the data and valuation space, while our 2014 acquisition of rental viewing scheduler Viewing Tracker improved our offering to property managers and tenants.

Why should we care?

After finding a new investment opportunity and presenting it to my boss at Trade Me, he would ask: “So what?” He meant, “Why should Trade Me care about this?”

The same question applies to this globe-trotting survey of portal M&A strategy.

The answer is different than the one I expected when I embarked on my journey last spring. I expected to uncover general investment themes shared by the world’s major property portals.

However, after six months of travel and dozens of interviews, I am surprised to find no commonalities among them. No two portals share the same investment approach and strategy. Each achieved massive success in its own way.

It’s clear that no one winning strategy exists.

So, if you’re looking to replicate the success achieved by these global leaders, my survey suggests it’s best to pick a path that aligns with your aptitude and vision and then execute well.

Happy hunting!