JP Morgan Global Online Classifieds Report 2024: Key Highlights Include REA, Scout24 and Rightmove

JP Morgan released its Global Online Classifieds report in November 2024, with marketplace giants REA Group and Scout24 SE both having their stocks upgraded to Overweight.

Other real estate marketplaces highlighted in the 141-page report included Schibsted, Naspers, Rightmove and CoStar, while themes including AI and consolidation were also highlighted.

An Overweight label indicates the bank's opinion that the corresponding company's stock will outperform the sector average moving in 2025. The other labels are Neutral and Underweight.

REA Group was deemed Overweight with JP Morgan saying that, at the core of its thesis, "REA [continues] to take vendor wallet share from [rival portal Domain]."

Domain was labelled Underweight and is expected to underperform in 2025, with the bank saying downgraded offers and free listings led to Domain's average revenue per listing (ARPL) falling by more than 50% from Q4 2024 to Q1 2025. In other words, according to JP Morgan, Domain stock has limited upside in the next 12 months.

In the United Kingdom, Rightmove was also deemed Underweight after it became embroiled in an unexpected tug-of-war with REA in September 2024. JP Morgan said:

On the short side, we stay cautious on Rightmove (UW) - with the final curtain fallen on the Rightmove/REA deal, investor focus has shifted to Rightmove’s strategic execution in the next 12 months with a high bar now set on delivering shareholder value in years to come.

Through a European lens... Rightmove [is] overly expensive for low relative earnings growth over the outlook period.

Meanwhile, an Overweight tag was also reserved for CoStar Group, with JP Morgan on the record saying it has "high conviction" in CoStar's strategy:

We maintain a high-conviction call for CoStar.

The quality of [CoStar's] content is confirmed by over 100M monthly unique visitors (retail customers) across a range of online platforms. The majority of the revenues (>90%) are subscription based with an over 80%+ renewal rate, meaning a highly scalable operating model. CoStar Group already generates >$2.7B in revenue and sizable EBITDA margin (when excluding substantial spend on residential business expansion).

We think the company can deliver an 18% 3Y top-line CAGR. We like CoStar Group’s strategy of widening the audience of potential users of its must-have real estate information services through an online marketplace platform.

In mainland Europe, Overweight marketplace operators included Prosus, Naspers, and Schibsted, while Scout24 was upgraded to Overweight earlier this year.

JP Morgan said:

We recently upgraded Scout to Overweight from Neutral, with the stock standing as one of our top picks across European Internet – pairing competitive top-line growth with ongoing margin expansion, and compounding attractive valuation against its peer-set.

At the same time, we believe the current market environment is likely to reward resilient, less cyclical earnings momentum – where we see the company as positioned to benefit from additional product launches next to a strong core business going forward.

JP Morgan also discussed core themes including digitalization, artificial intelligence, and the likelihood of consolidation in the coming years:

The benefits of AI continue to unfold with product development, content creation and consumer experiences now in focus. There remains a need to tap into new revenue streams, which have already started to unfold. New product offerings include: a) more digital capabilities (such as entirely virtual viewing in the property vertical); b) transaction models that offer entirely new, incremental revenue streams; c) dynamic pricing options; and d) plenty of ancillary services.

The scene looks set for consolidation in Europe and beyond. Strategic activity in the sector has remained high in recent years, with Private Equity showing a strong willingness to engage Online Classified models, with ongoing strategic M&A in play. We expect this narrative to continue, if not intensify.

The $13.4bn take-out of Adevinta in May this year may prove the catalyst the market has been waiting for, and we see growing opportunity to further European marketplace consolidation, while the recent separation of Axel Springer’s classifieds business (now fully to private equity) may see more assets come to market, not withstanding CoStar’s ambition to consolidate across the rest of Europe. Importantly, we continue to see scope for Prosus (OW) to deploy further capital into classifieds, should attractive options arise.

With Classifieds a capital-light asset model where personnel expenses take the lion’s share of costs, we see headcount efficiency under scrutiny.

Finally, Prosus achieved the highest share price increase from January-November 2024, up 41% for the period, while Domain shares dipped the most at -19%. Interestingly CoStar share prices went down by 14%, while REA shares were up 36% for the period.