Trade Me Group Ltd and Fairfax Media Limited: 2 classified advertising stocks to follow

Online listing portals are great businesses when they are well known and dominate their business categories. They can attract many customers over a large area and charge premiums for their services. Investors can reap rewards if they hop on the right stocks as they are growing in market reach and depth.

New Zealand’s top online portal, Trade Me Group Ltd (ASX: TME), announced in its quarterly results for rental homes and jobs listings that a total of 50,000 roles were listed on the website in the final quarter of 2013, a 17% increase compared to the same period last year. It stated that many employers are expecting a healthier jobs market in 2014.

Rentals listings were up by 24% over the quarter for Christchurch because of the continued reconstruction there, Auckland was down 3% and Wellington dropped by 17%.

In December the company announced that it will acquire MotorWeb for NZ$19.5 million. MotorWeb packages and sells vehicle information and reports to finance companies, insurers, car dealers and the general public.

The online service will complement the car listings and related vehicle services that Trade Me already offers.

Fairfax Media Limited (ASX: FXJ) wants to move away from its traditional business of print media and expand into digital services. It hopes to take back market share in areas like jobs, real estate and car classified listings, in which it once dominated the market when newspapers and magazines were the only game in town.

To take on SEEK Limited (ASX: SEK), the number one employment listings website, Fairfax will enter into a joint venture with UK-based Adzuna, which also has an Australian jobs site and operates as a jobs board aggregator.

It also announced that it has purchased Property Data Solutions (PDS), which provides property data research through its PriceFinder business. It has over 5,000 subscribers who are mostly real estate businesses. PDS will be joined together with Fairfax’s existing Australian Property Monitors.

This is to beef up its competition with REA Group Limited’s (ASX: REA), which has pulled ahead of Fairfax’s real estate listing website and grown many times over in share price over the past 10 years.

Can Fairfax become number one again in these listing categories? It remains to be seen. Can it put a dent in its competitors and take back some market share? Yes, if it commits to the challenge.

Foolish takeaway

Listings portals can be lucrative businesses when a company establishes market dominance, but staying on top is the challenge. A competitive advantage may keep you there for a while, but to last for many years requires protective “moats”, barriers to entry and constant investment to retain the crown. If rivals can match services or commit money to grow in that direction, the number one may not lose completely but profit margins may suffer.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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