The current environment of soaring inflation and rising interest rates is having a widespread impact across the S&P/ASX 200 Index (ASX: XJO).
But it's not just ASX shares that are being hit.
As the Reserve Bank of Australia hikes rates to curb inflation, the Aussie property market is also coming under pressure.
House prices across the country are falling as home buyers see their borrowing capacity reduced and future mortgage repayments head north.
This has ramifications for ASX 200 shares REA Group Limited (ASX: REA) and Domain Holdings Australia Ltd (ASX: DHG), which operate the two leading online property marketplaces in Australia.
Lower house prices could see fewer properties come to market, leading to lower listing volumes on sites like realestate.com.au.
However, lower volumes could be offset by increased advertising efforts by agents, who could rely on more premium packages from REA and Domain to clear their properties.
While the outlook for ASX 200 property shares is mixed, let's take a closer look at REA and Domain to see which one could be a better buy.
Getting to know REA Group
REA is best known for its leading online property marketplaces in Australia, led by realestate.com.au. It also owns realcommercial.com.au and flatmates.com.au.
Sitting alongside these online advertising platforms is data insights business PropTrack, formerly ASX-listed broker business Mortgage Choice, and home loans business Smartline.
Rounding out REA's network are various equity investments across the globe.
It has a majority stake in the number one property marketplace in India, along with minority stakes in the number one sites in Singapore, Vietnam, Malaysia, and Thailand.
Unpacking Domain
Domain is best known for its eponymous property platform, which goes head to head with REA.
It also owns listings websites Commercial Real Estate and Allhomes, the latter of which is the top-ranked site in Canberra.
Complementing this core business is a range of agent solutions across property data, point of sale, inspections, and campaign management.
Like REA, Domain also operates in the home loans space. But unlike REA which has a global network, Domain's operations are solely on Australian soil.
REA vs Domain – compare the pair
Now that we've laid the groundwork, here's a summary of how the two companies stack up against each other.
It's worth noting that for both companies, FY22 growth has been muddied by acquisitions.
While REA reported 18% revenue growth excluding acquisitions, Domain didn't provide investors with a metric for organic growth.
| REA | Domain | |
| Market capitalisation | $17.2 billion | $2.3 billion |
| FY22 revenue | $1.16 billion | $357 million |
| FY22 revenue growth | 25% | 23% |
| FY22 profit growth | 19% | 3% |
| Trailing price-to-sales ratio | 15x | 6x |
| Trailing price-to-earnings ratio | 45x | 61x |
| Trailing dividend yield | 1.3% | 1.7% |
| Majority shareholder | News Corp (ASX: NWS) – 61% | Nine (ASX: NEC) – 60% |
The case to end your search with REA shares
The power of REA lies in its dominant market position. Realestate.com.au averages 124.1 million visits each month, a whopping 3.36 times more visits compared to its nearest competitor, Domain.
In fact, according to market research firm Nielson, realestate.com.au is Australia's seventh largest online brand, ahead of big names like Amazon (NASDAQ: AMZN) and PayPal (NASDAQ: PYPL).
As the largest player, REA experiences strong two-sided network effects. The more agents that join the platform, the more valuable the platform becomes to consumers on the hunt for their next (or first) property.
And the more prospective renters and buyers that join the platform, the more valuable it becomes to agents and vendors looking to get their listings in front of as many people as possible.
Benefitting from a first-mover advantage, REA has cultivated its position as the go-to online property marketplace for consumers. As a result, agents flock to the platform, spending valuable advertising dollars to get access to the biggest and widest audience.
After conquering the local market, the company hopes to replicate this success overseas. Emerging markets, in particular, will be a key growth driver for REA as online penetration only increases.
The case to knock the hammer down on Domain shares
The bull case for Domain shares centres on the company's evolution to a marketplace model, a strategy that was born during COVID.
This strategy is all about creating an ecosystem of services where Domain can support agents and consumers at more points on their property journeys. And, in turn, expand Domain's addressable markets.
To this end, the company's business model is evolving from a publisher model that supports a one-off transaction, to a property ecosystem that is responsive to the entire property journey.
Building on long-term and trusted relationships, there are four key pillars to this strategy: core listings, agent solutions, consumer solutions, and property data solutions.
Underpinning each pillar is different initiatives, powered by a mix of internally-developed solutions, acquisitions, and joint ventures.
For example, market segmentation and flexible pricing support growth in controllable yield for Domain's core listings business.
And its recent acquisition of Realbase adds to the company's end-to-end suite of workflow solutions that help agents grow their business.
Like any ecosystem, there's also value in how the different pieces of the puzzle come together. Here, Domain is leveraging its data and expertise across verticals to collaborate on new features and produce better outcomes.
Better ASX 200 property buy
As a long-term investor with a tilt to quality, it's hard for me to go past REA.
The company is a proven performer with a dominant market position, strong brand power, compelling network effects, and promising global prospects.
The REA share price has tumbled 24% this year, underperforming the broader ASX 200 index which has dropped 7%.
But across a long-term investment horizon, REA shares shine. The REA share price has nearly doubled over the last five years. And it's grown more than 700% in the last decade.
