iProperty Group Ltd (ASX: IPP), an online real estate listings website operator, announced its annual results for financial year 2014 with a 15% gain in revenue. Net profit after tax was negative, but earnings before interest, tax, depreciation and amortisation (EBITDA) for its advertising business showed its first profit.
The property search website company operates the number one sites in Malaysia, Indonesia and the Hong Kong region, as well as having sites covering Singapore and the Philippines. It is currently in the process of acquiring Thailand's number one website.
The company has a market capitalisation of $594 million and REA Group Limited (ASX: REA), the operator of Australia's number one property search website realestate.com.au, is a major shareholder.
iProperty has established a network of websites across South East Asia and now is gathering paying agents and property agency subscriptions at a fast pace. Its key Hong Kong, Malaysia and Indonesia markets are all growing double digits in revenue.
Here are the annual results highlights:
Revenue reported revenue $21.8 million, up 15%
Earnings before interest, tax, depreciation and amortisation (EBITDA) -$370,000, up from -$2.94 million
Net profit after tax (NPAT) reported NPAT -$10.7 million, down from $1.7 million
Earnings per share -5.91 cents per share, down from 0.94 cps
Dividend per share no dividend declared
Net earnings are still negative, yet based on the pace of revenue growth and operating expenses rising at a much smaller rate comparatively, iProperty management projects its financial year 2015 revenue to be around $30 million – $36 million and expects to deliver an EBITDA profit of $2 million – $5 million.
iProperty Group has the potential to increase its market share and build up recurring revenue by adding more agency subscriptions. It reminds me of how REA Group was 10 years ago as it was establishing itself. It started out with losses as well, but once it became the number one Australian property site, the earnings quickly grew.
iProperty Group could benefit by having REA Group as a major shareholder (19.9% stake). In January, REA Group's CFO Owen Wilson joined the iProperty board, so the company may be able to take advantage of the expertise and technical skills of REA Group for business development.
Currently, iProperty Group has a price-earnings ratio of 116 based on trailing earnings and pays no dividend. For investors, there is attractive potential, yet it may not hurt to just watch the stock until it is generating a clear net profit after tax.
You may miss out on some of the potential early gains, but consider that like insurance to protect your investment with some margin of safety. Once iProperty can build up a strong, growing base of revenue from all its markets, the company's fortunes could change relatively quickly.
