A decade and a half after stock exchange investors first started to talk excitedly about “internet businesses,” the promise has finally been borne out – not by that first crop of hopefuls, but by the big business-disruptive web stocks, jobs website operator SEEK (SEK), real estate sales website realestate.com.au (operated by REA Group, REA), auto sales website Carsales.com (CRZ), hotel accommodation website Wotif.com (WTF) and travel booking site Webjet (WEB).
Several of these successful internet-based businesses have become very significant companies: REA Group is capitalised at $6.4 billion, SEK at $5.8 billion and CRZ at $2.6 billion. Wotif.com and Webjet are much smaller, worth $544 million and $217 million on the stock exchange respectively, but all five are solid, fully franked dividend-paying companies.
Many investors would rue not getting on board for the ride, when these companies set out to disrupt their respective industries.
The new wave
But there is another wave of listed internet-based businesses coming through – not exactly the same as their big-five predecessors, but looking to apply similar business models and hopefully, grab similar chunks of market share.
The caveat with the second-wave companies is that mostly, they are not yet profitable – let alone generators of fully franked dividends. But SEEK, realestate.com.au and Carsales.com had to start somewhere, too.
iCar Asia
If you’re trying to find the next Carsales.com, a handy shortcut is to look for what has impressed Carsales.com itself. The auto sales heavyweight has taken a 22.9% stake in iCar Asia (ICQ, $1.30, market cap. $240 million), which operates essentially the same business model, but owns car sales websites in Malaysia, Indonesia and Thailand. The company says its Malaysian site, Carlist.my, and its Indonesian site, Mobil123.com, lead their respective markets, while its Thai site, ThaiCar.com, is number two.
ICQ says its vision is to become the ASEAN region’s “largest and most trusted digital automotive market place” is “well on course” – and clearly Carsales.com, which knows a thing or two about selling cars online, is a fan of what they’re doing. But while ICQ says 2013 – its first full year of operations since listing on the ASX in 2012 – was a year of “dynamic growth” in its key metrics of listings, audience and leads, it reported a net loss of $6.9 million for the year, compared to a net loss of $1.8 million in 2012.
If ICQ can clearly establish its sites as market leaders, they will develop pricing power (which Carsales.com has) and become profitable. Until then, the stock has to be considered highly speculative – but with at least the possibility that Carsales.com decides to take ICQ over.
Property
ICQ is part of a three-stock stable of internet companies chaired by businessman Patrick Grove. Another is iProperty Group (IPP, $3.13, market cap. $567.8 million), which owns what it describes as Asia’s No. 1 network of property portal sites under the umbrella brand of iProperty (www.iproperty.com). IPP operates 10 property websites (nine residential, one commercial) across Malaysia, Hong Kong, Macau, Indonesia and Singapore, and has investments in sites in India and the Philippines.
Real estate agents and developers pay to list properties on the company’s sites: for the year ended 31 December 2013, IPP lifted its revenue by 23% to $19.05 million, and reported a net profit of $1.71 million, compared to a net loss of $2.94 million in FY12. IPP certainly has the potential to be the next REA Group – but in southeast Asia, not Australia or Europe.
Real estate portal Onthehouse Holdings (OTH, 64 cents, market cap. $52.6 million) might not openly aim to be the next REA Group, but it makes no bones about being modelled on the highly successful North American website, Zillow.com. Like Zillow, Onthehouse says it is a “second generation” real estate portal because it combines free access to an extensive property database (onthehouse.com.au) covering Australian properties – including historical sales and rental data, comparative property data – with more traditional real estate online classified listings.
The strength of this model, Onthehouse modestly says, is reflected in Zillow’s market capitalisation, which is approaching US$4 billion. Onthehouse chief executive officer, Michael Fredericks, says OTH is “around two to three years behind Zillow” in terms of its development, and sees Zillow as “an exciting forward indicator of where Onthehouse is heading.”
For the half-year to 31 December 2013, revenue rose by 14% to $12.95 million, while net profit was clipped by 20% to $587,000. No dividend was paid.
Travel
In the travel space, the tiny Disruptive Investment Group (DVI, 2.1 cents, market cap. $7.6 million) has big plans. Disruptive, which listed in 2013 through a backdoor takeover of failed former food-brand franchisor Allied Consolidated, owns the travel websites www.checkin.com.au (hotel bookings), www.CheapHotels.com.au (travel and hotels) and www.EscapeLounge.com.au (booking service for Australian travel tours and adventures.) Earlier this month, Disruptive signed a deal with global insurer, Hollard Insurance to offer branded travel insurance products to Disruptive’s customer base, including “Check-In.com.au Travel Insurance.” DVI’s stated strategy is to be a “one stop shop” for travellers.
Lastly, the third member of the Patrick Groves-chaired Asian-oriented stable of internet businesses is the newly listed (December 2013) internet retail business iBuy (IBY, 54 cents, market cap. $194 million), which resembles Groupon, in that its websites – BeeCrazy.hk, BeeCrazy.hk, Mydeal.com.my and Dealmates.com – offer discount deals for a range of goods, on the “flash sale” model (also known as “deal of the day”), in which a website offers a single product for sale at discount prices for a short period only (usually up to 36 hours.) Retailers like the ‘flash sale’ model because it can clear excess inventory while building brand loyalty. Disruptive reported a net loss of $466,151 for the half-year to December.
For many self-managed super fund (SMSF) investors, the lack of profits – let alone dividends – for most of these stocks would be reason enough to avoid them. But at one point, the prospects for SEEK, REA Group, Carsales.com, Wotif.com and Webjet would have looked similar. Fortune certainly favoured the brave speculator back then – for that’s what this kind of investing is – and those taking a similar leap of faith in this group could potentially be well-rewarded, too.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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- Tony Featherstone – Austbrokers best long-term bet in changing insurance space [3]
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