Fairfax Media won’t float Domain separately, says Catalano
The boss of Fairfax Media’s real estate business Domain has rejected the notion the media company is looking to float the business as a separate entity in a bid to maximise its revenues and share price.
Fairfax Media split its Domain Group away from its Australian Metro Media division in August ahead of the company’s financial results announcement the following week, fuelling speculation that a Domain float was on the horizon.
Speaking to Mumbrella, Antony Catalano, Domain CEO, said there was “no need” for the real estate business to float separately.
“When you have a business that is growing as quickly as Domain is growing then we have an obligation to our shareholders to realise the value of this business,” he said.
“Fairfax is never going to float this business when so much of the value still hasn’t been realised. We’ve said publicly this is a business we expect to grow from $120m EBITDA to somewhere in excess of $200m EBITDA over the next two to three years.
“When there is that kind of profitability and growth still to come, why would you float it? The share holders of Fairfax are entitled to realise the potential of this business.”
Antony Catalano: The slowdown of properties for sale is impacting Domain
In August, Fairfax Media’s financial results showed Domain earnings before interest and tax (EBIT) represented more than half of the profits for the whole company, with the online classified website recording EBIT of $107.3m up from $80.9m last year. The whole company’s EBIT figure was $213.2m.
At the company’s annual general meeting in early November, Fairfax warned Domain’s first-half EBITDA would “likely to be slightly below the prior corresponding period due to listings softness and continuing investment in the business” as new listing volumes at the end of October were down 18% in Sydney and 5% in Melbourne.
Catalano said: “It’s clear from the current performance of both Domain and REA that the slowdown of the number of properties for sale impacts our business but what doesn’t impact our business is the notion of prices going up or going down; we’re not in that game.
“We’re a business that currently relies on the number of properties being sold or rented.
“The thing to look beyond is whether it’s us or our competitor, we move into adjacency businesses, like mortgages and insurances, then our business is less and less reliant on the volume of turnover. What we’re doing is future-proofing our business from the ebbs and flows of the real estate market.”
The last year has seen Domain diversify and acquire “a whole range of adjacencies” including utilities comparison business Residential Connections; Bevo, a free, personalised service for small and medium-sized businesses to connect their essential services when moving premises or when seeking better deals on existing contracts; and mobile property inspection app Homepass.
“We’re building this business out from being traditionally and simply a real estate classified business into a whole real estate ecosystem which takes people along the whole property lifecycle,” Catalano said.
“This is a business that started life very simply as a digital listings business and is now becoming a full media lifestyle brand, which is why we’ve seen the explosion in our audience from 5m sessions a month to 50m and a unique audience of almost 4.7m.
“It’s a business now in audience size that attracts a bigger audience than the Sydney Morning Herald, it’s bigger than Seek, it’s twice the size of Carsales, it’s twice the size of The Daily Telegraph, it’s almost twice the size of the Herald Sun – which is the the largest selling newspaper in the southern hemisphere,” claims Catalano.
Catalano says it is Domain’s content strategy that has been “critical” in helping it realise its audience growth.
“It’s been a huge part in recognising that the property cycle is not just buying or renting,” he said.
“12 months ago, when I listened to the REA analyst briefing and management spoke to the analysts about the fact that only 54% of the audience hit the buy button. We took that as a huge vote of confidence for us, what they don’t understand is not everyone is ready to buy.
“Most people go through the lifecycle of learning: we get interested in the property market, we learn what we can afford, we learn where we should buy. It’s a long road between the decision to buy a house and actually buying one.
“We look at content as what gets you in and then we’ll help you along the property lifecycle and when you’re ready to buy, you’ll go on the site and do the search to buy because we’ve helped you make an informed decision.
“That is the role of the media – either to inform or to entertain,” Catalano added.
He said Domain’s content strategy was very “deliberate”, partly due to Catalano’s own background as a journalist.
“I see the value of providing informative, independent commentary,” he said.
“You’ve seen our audience go up enormously, last month 10.1m page impressions in our news and advice section were from people reading our content, that’s three times the number of page impressions than our competitor,” Catalano asserts.
“We are absolutely the trusted brand, almost three times as trusted as Realestate.com because we have this history of quality journalism and quality information.”
In terms of REA, Catalano has been vocal in his views on what he says is a “copycat competitor”.
Catalano argues REA is not comparing like-for-like in terms of audience and therefore misleading the market.
“What I’m incredibly critical of our competitor is whenever they put out information on who their audience is, they always compare us and them on desktop traffic but more than 55% of traffic comes from mobile.
“How can you deliberately misinform people about your audience numbers by leaving out half of our audience metric? It’d be like me saying ‘I have 2m in print and you have none’; they don’t have a print audience.
“If you’re going to compare audiences, compare like-for-like, tell the full story and stop misinforming your clients, your analysts, your audience, the public.”
Catalano argues News Corp’s REA is “stale” as a company having “taken its eye off the ball in Australia”.
“They were number one for a long time, unchallenged, and being the best team on the ground when you’re the only team on the ground is a very easy to claim than being number one,” he said.
“What’s happening now with having a very strong challenger brand is they’re being exposed for not being as good as they think they are.”
Catalano argues the “copy-fast approach” of some digital business is a “weak stay in business approach”.
“It doesn’t lead to success,” he said.
“You have to continue to innovate, you have to continue to look outside of your core business, which is why Domain is expanding into the real estate-related adjacencies.
“We’ll be the last company to take a copy-fast approach. We have to innovate, have to have creativity in our business. We also need to fail fast.
“That’s the criteria to have in a business like ours to make sure you succeed. In our case, we want to be number one and to be number one as quickly as we can. If you follow fast, you’re destined to be number two.”
In terms of innovation, Catalano says it’s Domain’s use of Facebook Live and MessengerBot that demonstrates the level of innovation in the business.
In May, Domain started broadcasting auctions live using Facebook Live and also started to use Facebook’s MessengerBot technology.
“Things like Facebook Live demonstrate the agility of the Domain business and the product team and the tech team, the creativity that exists within our business. We’ve got an incredibly talented group of people who can turn things around really quickly,” Catalano said.
“When Facebook launched MessengerBot we had the Domain MessengerBot built within three hours and there were 13.5m properties you could search and ask a Siri-like question of ‘what’s this property worth?’, and within four seconds you’d have an answer.”
Catalano said Facebook Live allows Domain to “demystify” the auction process to the consumer.
“It helps people understand the process and it highlighted to people just how innovative we are in terms of being able to disseminate an audience to a much broader audience.”
On Fairfax Media more widely, Catalano dismissed the suggestion it has become a real-estate business, despite Domain representing more than half the profits for the company.
“We are very much a multi-media business, but with a very strong focus on digital,” he said.
“We have 13m Australians access Fairfax mastheads every month, we’ve taken a digital-first approach to the company strategy but we don’t pretend to be one or the other.
“We’ve got Domain, we’ve got 50% stake in Stan, we own 54% of a radio network, we own a print and digital business in NZ, we own print and digital mastheads in Australia, we’ve got a digital ventures business, which includes assets like Women’s Own, we’ve got a JV in RSVP Oasis – this is long way removed from a print business but we’ve got a huge amount of print assets so we’re not only a digital business and it’s certainly not only a real estate business.”
In terms of the company’s performance, Catalano said it is “hugely advanced in its transformation from a traditional media business to a modern media business”.
“Greg Hywood [Fairfax Media CEO] has been in the chair since 2010 and has done an extraordinary job of turning this business around, and when you’ve got 60% of your earnings in 2017 coming from digital businesses, that’s a huge transformation,” he said.
Speculation suggests Hywood is set to step down from the top job next year, with further speculation suggesting Catalano could be in line for the job.
While Catalano did not say “no” when asked if he would take the job, he did say: “I’m very comfortable managing the real estate section, it’s what I know and like and I’m very happy doing the job I’m doing.”
Miranda Ward worked for Mumbrella from 2013 to 2017, eventually becoming deputy editor. Miranda joined Mumbrella in September 2013 from Sky News.
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Time for Catalano to run the whole house
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So much to enjoy! The float meme has clearly run out of steam. Perhaps because it is so blatantly ridiculous. Let’s see what Domain looks like when all the print is gone. And speaking of which the glorious Hywood achievement is that digital is 60% of the business. Could that be because the profit from all else has tanked do you think? Peas and thimbles as usual.
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