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Is Rent.com.au Ltd next on the REA Group Limited radar?

Rent.com.au Ltd (ASX: RNT) has a current market cap of $24.7 million, after soaring 24% so far today, but is still cheaper than REA Group Limited’s (ASX: REA) most recent acquisition.

In a case of perfect timing, a marketing report for Rent.com.au was emailed to share trading forum Hotcopper members earlier today – at the same time that REA Group announced the acquisition of Flatmates.com.au – the market leading player in share accommodation in Australia – for $25 million, plus additional earn outs depending on financial performance.

Most readers would be familiar with REA Group and its flagship Australian website realestate.com.au. As the market leader of real estate classifieds, acquiring Flatmates.com.au was a no-brainer. Flatmates is Australia’s largest share accommodation website, with 2.6 million visits and more than 9 million flatmate searches on average each month. Growth is extremely strong too according to REA Group CEO Tracey Fellows at over 50% year-on-year.

REA says the acquisition allows them to play a more active role in helping consumers, regardless of what phase of the property lifecycle they are in, to find a home. The acquisition of Rent.com.au would add a third string to REA’s bow. While REA group does have a rental site, it appears to be small.

Rent.com.au has also tapped into a market that REA Group doesn’t cover at all – rental properties not managed by a real estate agent – around 46% of all rental properties according to Rent.com.au.

The company would then cater to virtually every aspect of Australian accommodation. Share accommodation, rentals as well as buying and selling houses.

Rent.com.au recently said that it had more than 60,000 active property listings, over 7,300 real estate agents registered and over 600,000 visitors to the website each month. 7 million Australians rent according to the company – more than 30% of the total population – and there are more than 3 million rental properties. Given Australia’s love affair with property investing, that’s probably no surprise.

Rent.com.au has also diversified into rental bond financing, utility connections, suburb statistics as well as renter history checks. A 3-year partnership with credit agency Veda provides those checks.

Like REA Group and its first few years, Rent.com.au is still unprofitable and was recently forced to raise $5.5 million in new capital at 15 cents per share in order to fund its operations and marketing. Until the company becomes cashflow positive, shareholders might be asked on occasion to kick in more capital, so Rent.com.au is not an investment for those looking to make a quick buck. There’s also the potential for competitors with bigger pockets like REA Group to target the same market, leaving Rent.com.au out in the cold.

Foolish takeaway

Like Flatmates.com.au, REA acquiring Rent.com.au seems like a no-brainer too. The other consideration is that REA’s primary competitor, Domain – owned by Fairfax Media Limited (ASX: FXJ) could also make a play for Rent.com.au.

Investors might want to also remember that while Rent.com.au could pay off handsomely in future, it is still a high-risk investment.

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Motley Fool writer/analyst Mike King dosn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia 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.