Southeast Asia property classifieds heating up
In this article, Michael Gethen, Partner at North Ridge Partners examines recent corporate moves by leading players in the real estate classifieds and marketplaces sector in Southeast Asia, and how this is clearly a sector with increasing competitive intensity.
Key players in the sector include:
PropertyGuru, (www.propertyguru.com.sg) a Singapore founded and headquartered company, launched in 2007, operating property websites and apps across Southeast Asia with a claimed market leadership position using key audience/consumer metrics in Singapore, Indonesia, Vietnam and Thailand.
99.co, (99.co) also Singapore founded and headquartered, launched in 2014 and similarly operating property websites and apps across Southeast Asia, and also claiming market leadership positions using various metrics. 99.co is a private company that most recently raised US$15 million in a Series B round announced in August 2019.
iProperty (iproperty.com.sg), a business founded in Malaysia and acquired by Australia’s REA Group in 2015 for US$531 million, and again, operating websites and apps across Southeast Asia, with particular strength in its Malaysian and Indonesian businesses. Parent company REA Group is an ASX listed company with a market cap of AU$14 billion.
Recent News
PropertyGuru recently pulled its IPO from the Australian Securities Exchange (ASX). The IPO would have given the company an AU$1.2 billion (~US$815 million) market capitalisation, delivering a very successful exit for early investors, and providing the listed company with a war chest of around AU$150 million (~US$100 million) in net cash to fund growth and expansion. The Aussie IPO market closed with a bang a couple of weeks ago so PropertyGuru seems to have been at the wrong place at the wrong time. However, it’s a good business and will probably be back. Watch this space.
Most recently, 99.co and iProperty have announced the creation of a joint venture that will see 99.co acquire and assume control of iProperty’s business in Southeast Asia, with REA Group injecting US$8 million into the business.
What we observe here is a typical market evolution dynamic where the #1, #2 and #3 players jostle for clear market leadership, with 99.co claiming that the acquisition of iProperty will immediately deliver a market leadership position in the Indonesian market, the largest country in Southeast Asia, with a population of 260 million people, and rising middle-class affluence, use of mobiles and propensity to engage using digital media.
To The Victor Belong The Spoils
In other markets where online classifieds and marketplaces have progressively replaced newspaper classifieds over the last twenty years as the medium-of-choice for consumers and industry players (real estate agents, car dealers, recruiters etc), a network effect typically occurs where a dominant leader measured by consumer metrics (audience size and engagement) and industry metrics (number of agents, number of listings and inquiries generated) drives that leader to earn disproportionately high market share for industry metrics such as revenue, invested capital and ultimately to sector profits.
Reviewing the financial performance of Property Guru from its prospectus, and comparing that data to REA Group’s published results for its Asian segment (which includes iProperty, plus also businesses they own in India, China and other non-Southeast Asian markets), but without having access to 99.co’s private company financials, it appears Property Guru already has leadership for sector revenues in Southeast Asia.
As the fight for market leadership evolves from a pure focus on organic growth, the natural evolution to a focus on corporate actions and M&A activity has emerged.
Market leadership through organic and acquisitive growth allows the leader to enjoy pricing power, becoming the price maker in a market, with the ability to set higher prices than follower competitors, thus driving higher revenue-per-customer and faster revenue growth.
We also see investors move their capital towards leaders in evolving markets, making it easier for early leaders to raise the capital to fund their growth. This combination of being able to build revenue faster and more easily attract capital is the dynamic that then leads to a leader earning the largest share of sector profits.
Our View
While we cannot predict who will dominate the market in 3-5 years time, it’s apparent in the near term that with two large and well-funded leaders fighting for market dominance, the landscape for online property classifieds in Southeast Asia will be all about PropertyGuru versus 99.co/iProperty.
These two leaders will both likely prosper in the very large and rapidly growing markets they operate in, and will make it very difficult for other industry players to achieve any significant scale, and we see, again, the learned wisdom of an old phrase “if you aren’t #1 or #2, it’s very hard to compete, let alone make any money.”
The quest for market leadership is ultimately about the combination of “owning” the consumer with the incumbent leader often becoming the default choice, and making outsized shareholder returns. This network effect can be illustrated by other examples such as Google’s dominance of search engine marketing, and Facebook’s dominance of social media advertising.
We forecast this battle for leadership in property classifieds in Southeast Asia will see these two players earning the vast majority of sector revenue and profits for some years to come, fighting tenaciously to claim ultimate leadership.
Watch this space!
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If you would like to know more about technology-related investment in Southeast Asia, please contact North Ridge Partners here.
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Sources:
PropertyGuru ASX Prospectus
REA Group ASX Results Announcement 9 August 2019