Cage match: Domain versus REA Group Ltd

Cam Fairfax Media Limited (ASX:FXJ) compete with market leader REA Group Ltd (ASX:REA)??

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Fairfax Media Limited (ASX: FXJ) today released an investor briefing focusing on its real estate portal Domain, and some of the data might surprise you.

Comparing revenues and earnings before interest, tax, depreciation and amortisation (EBITDA) between Domain and REA Group Limited's (ASX: REA) Australian operations suggests Domain is being left behind.

REA Group has seen growth in EBITDA rocket ahead over the last 3 halves while Domain is just growing steadily.

Based on company half-year reports here are the numbers.

EBITDA ($ m) 1H 2013 1H 2014 1H 2015
Domain 23.7 31.1* 37.8**
REA Group (Australia) 77.5 111.8 144.9

Source: company reports
* calculated
** includes one-off costs

In 2013, REA's EBITDA was 3.3x that of Domain, but in the latest half, earnings were 3.8x greater. The market leader, realestate.com.au is accelerating away from Domain, as this chart of EBITDA clearly shows.

Domain vs REA Group EBITDA

Source: Company reports

And it seems Domain has been forced to take several steps to try and catch up.

The business has implemented advertising solutions for property developers and is generating rising revenue from lead generation to home loan providers. Domain is also attempting to generate international interest, via pages on social media sites Pinterest and Instagram as well as Facebook and Twitter.

Domain has also launched HomePriceGuide, which allows users to quickly search 13 million+ properties for estimated property value, as well as full property sales and listing history – which is likely to compete with Onthehouse Holdings Ltd (ASX: OTH) products too – and not just REA Group.

But the biggest potential change has been the ongoing development of Metro Media Publishing agent ownership model and the national roll-out of digital agent ownership model. Effectively, this means real estate agents will share in 25% of Premium Plus revenues, with Domain retaining 75%.

While REA Group appears to want to take a much larger slice of real estate agent's sales commission, Domain seems to have taken another tack, sharing some of its revenue with agents – and obviously increasing the incentives for agents to list more properties as Premium Plus.

As yet, it remains to be seen whether Domain can claw back some of the lead REA Group has established. Domain will be hoping it doesn't go the way of News Corp's (ASX: NWS) joint venture CarsGuide and its attempts to compete with Carsales.com Ltd (ASX: CRZ), which have so far failed to make little if any impact on the market leader.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Carsales.com. You can follow Mike on Twitter @TMFKinga

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