For Rupert Murdoch, the $US950 million acquisition of a US online real estate platform, Move Inc., is one of those "back to the future" moments.
The most profitable newspapers, in the era when newspapers were very profitable, were built on their dominance of streams of classified advertisements, including real estate ads. The internet, however, dismantled that dominance and undermined one of the key foundations of that profitability.
In Australia, thanks largely to Lachlan Murdoch, News Corporation (publisher of Business Spectator), at least retained its exposure to real estate listings online via its 61.6 per cent in REA Group, which owns the realestate.com.au platform. Fairfax Media has similarly been able to retain its exposure to property listings through its Domain business, its most valuable asset.
Thus it isn’t a big leap for News Corp to acquire, in an 80:20 partnership with REA Group, the third-largest digital real estate platform in the US. The number one player in the US, Zillow, announced a $US3.5 billion acquisition of the number two player, Trulia, in July.
While the combination of Zillow and Trulia will have roughly twice the revenues of Move, which had revenue of about $US227m and earnings before interest, tax, depreciation and amortisation of $US29m in 2013, what that highlights is how fragmented the US digital real estate market is.
News believes the addressable market is about $US14bn, so there is both room for more than one large player as well as potentially massive upside. The potential of the world’s largest real estate market is gilded further by the steady improvement in the fundamentals of the US residential property sector generally.
News and REA have a commercial relationship in Australia that goes beyond the shareholding and into extensive cross-promotion. News hopes to replicate that in the US, using News’ media assets, which include the Wall Street Journal, to promote Move and drive (it said “turbo-charge”) traffic to it. It also believes the relationship can work in the other direction, creating a new platform to market its media properties.
REA’s experience in operating digital real estate platforms and generating value from them -- apart from realestate.com.au it has platforms in Luxembourg, Germany, France and Hong Kong -- will be brought to bear on Move.
In a hint of a larger ambition, News’ presentation of the acquisition referred to the “global opportunity” created by its relationship with REA and the existence of its other media assets around the world.
News, which was separated from its 21st Century Fox sibling last year, has the balance sheet to support an aggressive expansion strategy. It was left debt-free, with about $US2.6bn of cash. It’s only other significant acquisition since that demerger was the $US415m purchase of publisher Harlequin earlier this year, so it retains considerable firepower.
The Move deal provides an insight into one potential leg of a growth strategy because it leverages its existing media assets, where the economics of both print and digital media are challenging, into adjacent, familiar and far higher-margin digital spaces. REA Group had an EBITDA margin of 51 per cent last financial year, indicating the potential in the US market as the digital real estate listings market grows and consolidates.