‘Shock and awe’: Rates squeeze weighs down Domain

Domain chief executive Jason Pellegrino says he can bring costs down at the real-estate listings business by the end of this financial year, as it fights what he described as the worst market conditions the company has experienced in more than five years.

Consecutive interest rate rises and weak consumer confidence have taken a toll on Domain’s profits in the first half of fiscal year 2023, with earnings [before interest, tax, depreciation and amortisation] falling 19.2 per cent and net profit after tax slumping 38.9 per cent to $15.9 million.

Domain chief executive Jason Pellegrino is confident he can bring costs down despite inflation.
Domain chief executive Jason Pellegrino is confident he can bring costs down despite inflation.

Domain reported a 6.5 per cent rise in revenue to $186.6 million, driven largely by acquisitions.

Pellegrino said the numbers were “extraordinary” given the market volatility, which he described as worse than the downturn caused by the COVID-19 pandemic or the crackdown on lending after the banking royal commission.

“There’s a lot of shock and awe that’s out there because of the pace of nine interest rate increases within nine months,” Pellegrino said.

“What people are waiting for is a sense that they’re not going to be surprised going forward, so they can set their household budgets, they can set their intentions, they can set pricing, and they’re not going to be surprised by a scale of impact that’s outside of what they are budgeting for.”

Domain’s results included revenue from the acquisition of technology business Realbase last April, which boosted agent solutions revenue by 173 per cent. A six-month contribution from Insight Data Solutions, which it acquired in October 2021, boosted revenue in its insight business. However, the acquisitions have bumped up Domain’s costs for the period, up 20.2 per cent to $137.3 million. Nine Entertainment Co, the owner of this masthead, holds a 60 per cent stake in Domain.

‘There’s a lot of shock and awe that’s out there because of the pace of nine interest rate increases within nine months.’

Jason Pellegrino, Domain chief executive

Pellegrino said the rise in costs were due to acquisitions, and a $10 million to $15 million investment in technology products that would boost the company’s cybersecurity and privacy capabilities. He said he did not expect to take more costs out beyond the $25 million flagged last year.

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“We’ve really looked at sort of our return on investment assessment, but where we have made big shifts to reflect the market environment is reduced our discretionary cost base. Where we have choice around projects and timelines or priorities… we’ve just reassessed,” he said.

“We’ll see a material step down in our cost base, such that when we get to the end of the year we’re talking about a decrease in our overall expenses this year versus last year, even absorbing in that increase from acquisitions and spend on technology platforms.”

Pellegrino said the investment in technologies that protect customer data was more important than ever.

“Controlling that information, protecting the information, making the use of that information transparent, is critical for us,” he said. “That’s an area that we are making key decisions and investments to scale up our capabilities.”

Pellegrino was not as bullish as REA Group chief executive Owen Wilson about the timing of a market recovery. He said there were early signs that buyers were regaining confidence, but the prospect of more interest rate rises was making people more reluctant to sell property.

“Listing volumes in January, February, whilst not probably not as bad as what we saw in the second quarter of last year, they’re not bouncing back. People are not ready to rush through the gates and bring their properties to market.”

UBS media analyst Tom Beadle said the result was unsurprising.

“Domain reported a  small beat to previous guidance [EBITDA  $48 million vs actual $49.3 million] which appears to be as a result of slightly higher revenue than expected, though operating costs of $137 million were also ahead of guidance ($135 million). Current trading conditions unsurprisingly remain challenging,” Beadle said.

Domain shares are trading up 4.7 per cent at $3.20 in early afternoon.

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Source: Thanks smh.com