Company Interview / Domain results buoyed by the property market

Jason Pellegrino, CEO of Domain Holdings (ASX: DHG), reviews the company's solid performance in FY24. The company reported a significant net profit of $42.4 million, with an underlying profit rise of almost 28% to nearly $50 million. Jason is particularly pleased with the performance as it highlights the company's successful delivery of effective products on their core listings platform. He reveals that the average million-dollar property in Australia, if listed on Domain (ASX: DHG), sells for $36,000 more compared to those not listed on Domain (ASX: DHG).

Jason speaks positively about the company's outlook for FY25, revealing a positive start with July listing volumes increasing by 4% year on year. However, he acknowledges the impact of the macro environment, particularly how the economy and RBA's decision impact their business. Jason assures that despite factors like predicted interest rate falls, they remain unaffected and continue to witness positive trends as most properties are traded as homes, not investments.

Discussing future prospects, Jason confirms an 8% price rise in July, which underpins their yield growth. While he expects double-digit yield growth in FY25, he also shares their focus on investing in product and technology to deliver more effective products at a faster rate. Although having faced challenges with their developers' business, Jason assures that they are working with the government to improve the supply side of housing, using their technology platforms, data and insights.

Full unedited transcript:

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Online property firm Domain Holdings has posted a full year net profit of $42.4 million, including significant items loss of 6.1 million. Underlying profit up almost 28% to nearly $50 million. Revenue rose 13.1% to just shy of $400 million. We also had, of course, a dividend announced, but let's get the story behind the numbers and domain CEO Jason Pellegrino joining me now. Jason took us through your numbers, including that $6 million loss you had.

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So we've had a really strong year in FY 24. We've grown revenue by 13%. Uh, we have grown our EBITDA margin from 31% to 35%, and our net profit is up 27%. We have a discontinued business that we have. We have sold in the last year and it's been reported as a discontinued operation where that loss actually sits. It's a much lower loss than in prior years, but it will no longer sort of continue going forward. It's in our domain home loans business. Uh, we're now actually generating significant revenue, um, at a, at of our audience for home loans, but in another part of our business. But overall, I'm really, really pleased with the result, primarily because it comes from delivering products that work on our core listings business. Uh, if you bring a property to the domain platform, on average, the average million dollar property across Australia, if posted on domain, will sell for $36,000 more than if it's not posted on domain. And that's why we have more vendors bringing listings to our our platform,

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more buyers coming to our platform to find their next home, and more agents stepping up to premium products. That is driving an 18% growth in our average revenue per listing. And we have over 1000 people in domain who are building those products, delivering those products and delivering products that work that underpin that performance. We know, though, that the macro environment very much does affect your business. Jason, we heard from the RBA governor today, not flagging cuts anytime soon. What are you seeing in terms of the start of full year 25, in terms of growth? Yeah, quite strong. On the listing side. Uh, July listing volumes are up 4% year on year, which is ahead of our major competitor and the broader market. Uh, we're seeing that continue into August. So overall, the trends are quite positive. We're not seeing consumers. Australians react negatively in any way in the property cycle to the sort of the the views of the RBA or the the push back of, uh, inevitable interest rate declines. Uh, we

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saw that the brunt of that impact about 18 months ago. Back then, consumers weren't sure whether the peak of interest rates would finish with a 6 or 7 or an eight, uh, as the as the leading number. But right now, an extra 25 basis points, even if that happens, is not swaying people from, you know, getting into the market and doing what they need to do. Ultimately, the vast majority of properties in Australia are traded, are homes. They're not investments. And so people are taking the actions that are necessary to meet their specific needs at any point of their life. You have the flat. You have the growth moderating for the start of full year 25in the key markets of Sydney and Melbourne. What are you seeing in terms of momentum in other cities and states? So when we say growth is moderating, it's on a national basis. There's a mixed implication. So Sydney and Melbourne obviously have the higher priced properties on a national basis. And the product our prices are appropriately priced higher. So we've had we've had strong tailwinds in the last 12 months as those markets have outperformed. And actually in the

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prior 12 months in FY 23, we had huge tailwinds as those markets underperformed going forward into FY 25. Our expectation is that on a national basis, the markets will will move to a much more normal cyclical and property cycle footing. So we're seeing Sydney and Melbourne prices start to moderate, price growth start to moderate and stabilize and listing volumes strong listing growth starting to move back towards sort of more moderate listings growth. And so listings in Sydney Melbourne are slightly higher than the five year average and are being very, very consistent if I go to Queensland or other state. But Queensland particularly has been dramatically below that five year average in terms of listing volumes and hasn't seen price growth in recent months. Over the course of 24, that has strengthened significantly. We're seeing strong price growth in Queensland and listings are following it. So if we look forward to next year, what we should start to see is a more sort of balanced market across the country, with more markets closer to that sort of five year listings average. So do

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you have guidance on potential earnings for full year 25, given that you've indicated as well costs are likely to rise? Yeah. So we have an 8%, uh, price rise that we put through, uh, in July. And that will be consistent throughout the year. And so we're, you know, that will underpin our yield growth that we're seeing more and more agents upgrade to our more premium products. Uh, and so we'll see a kicker in terms of yield on top of that. So we do expect a double digit yield growth business, uh, in FY 25. Um, and on the cost side, we are investing heavily in our product and technology stack to bring new products to market at a faster rate, more effective products to market. We're also investing fairly heavily in these innovative new products like Audience Boost, where we are actually driving, you know, greater audience engagement through marketing in return, in other areas of our business, we know that we are subject to quite high inflationary pressures around technology costs around, you know, people and we are doing what we need to do to drive productivity

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across those other parts of the business. So our cost base and outside of technology and outside of audience acquisition is actually going to grow this year below CPI. And that's the demonstrated of our ability to balance investments in the right area with discipline of driving productivity in areas that are more discretionary. How is your print business going, Jason?

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To print. Print is a very, very valuable business to us because it is a fundamentally differentiated audience. There's very limited overlap between people who are seeing and engaging with property and print and those on digital sites. It brings passive buyers, particularly for premium properties. And so our print revenue has declined quite significantly over a number of years. Five years ago, our print business was about $70 million, last year was about $16 million. But what we've seen is the plateau of that. You know, it is a product that works for premium properties, and it's a property. It's a product that works well. It draws passive buyers. People are not actively out there looking, but have the disposable income and the disposable assets to buy properties and these premium properties, and it works really effectively in Melbourne, uh, across Sydney and some of the premium areas of south east Queensland. When we talk about some of the challenges that you faced in higher funding costs in particular as well, you did see a bit of a challenging environment for your developers business took us through that. And I guess what you're seeing in commercial real estate.

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So commercial real estate is actually a bit of a bright spot, surprisingly, given the context of the market situation out there, particularly in the office space and retail space, actually that business has grown significantly. We've been able to put through quite substantial price rises in the last 12 months, and we've seen an uptake to our premium products, and general listing volumes have been quite solid. Uh, the developer market on the other side, which is new builds, has been weak again. And this is the fifth year in a row of weakness. Uh, we're just seeing a real constraint on the supply side. You know, developments coming to market, uh, have slowed down. And really, that's a mixture of, you know, increased costs, lower sentiment, uh, sort of lack of capital and sort of debt financing for these projects to come together. And look, this is absolutely on the government's radar. It is causing real constraints on the supply side of housing in Australia, which is, you know, driving up rents, for example, or reducing the affordability for people looking to buy across parts of Australia. And so we're in there with government. We've got technology platforms and data and insights and

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research to help shine a light on those areas where the government can actually sort of make some interventions and change policy and drive policy outcomes to improve the supply situation. And then we have the technology platforms to actually make that happen. Are you confident that the government is going to meet its targets to build the amount of new homes needed?

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That's difficult to assess. We're definitely behind those targets. Uh, so but we've got a number of years to go, I think, to step back and look at that same question from a different angle. I'm not sure we can afford not to meet those targets. The consequences of not meeting those targets and the sort of ethical, moral and sort of even economic consequences on Australians is, is incredibly dire. If we live in a country where affordability continues to rise and be challenging and that that Australian dream, uh, you know, increasingly rental. But, you know, buying and owning property is getting further and further away. The social consequences of that outcome are going to be significant and will have ramifications for governments across the country. Jason, let's talk about the payment to shareholders. Final or full year dividend taking to $0.06 per share, which is in line with last year. What sort of further dividend growth can shareholders expect?

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With the 16th dividend, we're sort of at the higher end of our sort of range of what we think is appropriate. Um, the payout range, we we're going to see significant growth in revenues and profit over the course of the next year. And dollar profit. We our forecast is to grow that our, our, our yields and our sort of the pricing of our products and the revenue we generate in the double digits. Uh, we'll keep EBITDA margins stable over the course of the next year, which means that our dollar profit will increase and give us capacity to actually sort of selectively increase dividend over, over time. And so that's our focus as a management team. We're incentivized to grow our earnings per share, uh, across a number of parts of our our sort of incentive structures. So we are absolutely focused on driving greater levels of shareholder return. And with that in mind, I know you can't control the market, but do you think you've been unfairly punished over the past year, given the share price is down about 26%? Look, we've seen a lot of technology stock come off around the world. The interesting

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thing is we're trading roughly in line with a lot of peers in other markets. Right. Move in the U.K., Scout 24 in Germany. There's been a lot of volatility in this market. Um, you know, obviously we have a major competitor who is a fantastic business who is doing some great things. Uh, interestingly, like we have driven our 13% increase in revenue and a 28% increase in profit, which doesn't line up with share price. At the end of the day, the share markets are voting machine, and it does get it right over the long run. And all I have to do and all my team around me has to do, is to continue to deliver those results. And the way we will do that is to deploy our marketplace strategy and continue to deliver products that work, products that are innovative, products that are competitive, and products that deliver real value to the customers that we engage with.