There are two key challenges going forward for Nine, which owns the Nine Network, free streaming platform 9Now, paid streaming service Stan, radio stations like 2GB and 3AW, and some of the country’s largest publishing assets including The Sydney Morning Herald and The Age.
First, the television advertising market is largely flat. Advertisers are pulling back in a cost-of-living crunch, and there is more competition with streaming platforms – Amazon Prime Video will start running ads in Australia in the middle of this year. Television advertising made up 53 per cent of earnings in the last financial year. Domain added 11 per cent.
Jefferies Australia boss Michael Stock.
The second challenge is with Domain. The real estate platform is a key area for future growth for Nine, but it has not performed on par with $24 billion giant REA Group, which is 61 per cent owned by News Corporation.
REA’s share price is up 142 per cent over the five years from January 2019 – Domain is up 39 per cent over the same time. Assuming dividends are reinvested, total shareholder return over those five years for Domain has been 53 per cent; for REA, it has been 163 per cent.
Domain’s most recent trading update in November was weaker than analysts expected. UBS’ Lucy Huang told her clients that there was a “significant underperformance in [property] volumes” at Domain, despite REA reporting 4 per cent growth nationally. That could be due to strong growth in Western Australia and Queensland, she said.
Due to Domain’s historic strong presence in newspapers in Sydney and Melbourne, it is more competitive in those cities. There is also some competition from former Domain chief executive Antony Catalano’s View Media, which took $50 million in investment from ANZ early last year.
Nine’s chief executive, Mike Sneesby, and chief product officer Rebecca Haagsma both sit on Domain’s board, which is chaired by former Fairfax Media chairman Nick Falloon. Mr Falloon stepped down from Nine’s board, where he was deputy chairman under Peter Costello, in November 2022.
While trailing REA, several brokers expect a solid first half result for Domain this year, with greater activity in NSW and Victoria. Macquarie’s Darren Leung told his clients earlier this month that the focus would be on “the difference in listings growth between Domain and REA, in our view”.
“The spread between REA and Domain valuations is at record highs and Domain’s multiple is implying dwelling price declines – against our view of likely increases,” he said, upgrading his recommendation on the stock.
Private equity has long seen value in property and classifieds businesses, including in Domain.
In 2017, TPG spent a month looking at Fairfax Media’s books after mounting a $2.8 billion takeover offer for the company. It would have owned The Sydney Morning Herald, The Age and the Financial Review, but it was a deal primarily aimed at securing control of Domain.
TPG withdrew from the auction. Fairfax instead demerged and listed Domain after that, in late 2017, and merged with Nine the following year.
