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Is Domain.com.au catching up to REA Group Limited?

Long-term leader in the local real-estate classifieds market REA Group Limited (ASX: REA) is being challenged more than ever by close rival Domain.com.au, owned by Fairfax Media Limited (ASX: FXJ).

What’s the Damage?

Domain.com.au has been taking a similar approach to that of Carsguide.com.au in its competition with Carsales.Com Ltd (ASX: CAR); drive traffic through free or heavily reduced fees to rapidly grow listings and views.

In a somewhat comic series of events, REA Group and Carsguide are both partially owned by News Corp (ASX: NWS), so the company’s getting some of its own medicine from Domain.

Domain’s campaign has been hailed as a relative success, with listings numbers now around 80% that of realestate.com.au, well above the 60% recorded in 2013, however this doesn’t appear to have translated to more views or revenue.

Important Metrics

In the online classifieds business listings numbers are not the best way of representing dominance. While Domain’s listing numbers have nearly caught up to REA Group’s, other metrics like time spent on the website, advertising revenue share and page views are still in favour of realestate.com.au.

Investors’ Favourite

Almost every real estate investor or homeowner I’ve spoken to has told me that REA Group’s realestate.com.au site is their go-to resource when looking for properties. This is demonstrated by realestate.com.au’s 85% share of time spent on Australian real estate websites and its page views being 2.5 times higher than that of Domain.

Should Investors be Concerned?

Realestate.com.au is the dominant real estate classified website in Australia by every measure. The company counts some 1,950 Australian real estate agents as customers (of circa 2,000 in total) and commands the majority of time spent online and views.

REA Group has also had terrific success in up-selling agents to ‘depth’ listings, while Domain’s customers pay either a nominal amount or have free subscriptions. With more eyeballs on pages, REA Group will always be able to command higher fees from agents and higher rates from advertisers, driving sustainable shareholder returns and profit for reinvestment in developing markets.

However, before you rush out and buy shares you should know, Scott Phillips, lead investment advisor of Motley Fool Share Advisor, has just announced his #1 stock pick of 2015 and I think it's an even better buy than REA Group right now.

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Andrew Mudie has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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