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ASX 200 is better to buy: REA or domain shares?

The current environment of soaring inflation and rising interest rates is having a widespread impact on the whole S&P/ASX 200 Index (ASX:XJO).

But it’s not just ASX stocks that are affected.

As the Reserve Bank of Australia raises rates to curb inflation, the Australian housing market is also under pressure.

Home prices across the country are falling as homebuyers see their ability to borrow reduced and future mortgage payments head north.

This has ramifications for ASX 200 stocks REA Group Limited (ASX: REA) and Domain Holdings Australia Ltd (ASX: DHG), which operate Australia’s two largest online property markets.

Falling property prices could lead to fewer properties coming onto the market, leading to lower listing volumes on sites such as realestate.com.au.

However, the drop in 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 ownership shares is mixed, let’s take a closer look at REA and Domain to see which might be a better buy.

Discover the 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.

Alongside these online advertising platforms are data intelligence firm PropTrack, formerly an ASX-listed broker, Mortgage Choice, and home lending firm Smartline.

Various equity investments around the world complement REA’s network.

It has a majority stake in the number one real estate market in India, as well as minority stakes in the number one locations in Singapore, Vietnam, Malaysia and Thailand.

Unpack the domain

Domain is best known for its eponymous real estate platform, which takes on REA.

He also has listing websites Commercial Real Estate and Allhomes, the latter being the highest ranked site in Canberra.

Complementing this core business is a range of agent solutions covering property data, point of sale, inspections and campaign management.

Like REA, Domain also operates in the field of home loans. But unlike REA which has a global network, Domain operations take place only 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 compare.

It should be noted that for both companies, FY22 growth was muddied by acquisitions.

While REA posted 18% revenue growth excluding acquisitions, Domain did not provide investors with a measure of organic growth.

The Case for Ending Your Search with REA Actions

REA’s strength lies in its dominant market position. Realestate.com.au averages 124.1 million visits each month, 3.36 times more visits than 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 bilateral network effects. The more agents that join the platform, the more valuable the platform becomes for consumers looking for their next (or first) property.

And the more potential tenants and buyers join the platform, the more valuable it becomes for agents and sellers looking to get their listings to as many people as possible.

Enjoying a first-mover advantage, REA has cultivated its position as the go-to online real estate marketplace for consumers. As a result, agents are flocking to the platform, spending precious advertising dollars to reach the widest and widest audience.

After conquering the local market, the company hopes to replicate this success abroad. Emerging markets, in particular, will be a key growth driver for REA as online penetration only increases.

The case to bring down the hammer on domain shares

The bullish case for Domain shares centers on the company’s shift to a market model, a strategy born during COVID.

This strategy is about creating an ecosystem of services where Domain can support agents and consumers at more stages of their real estate journeys. And, in turn, expand Domain’s addressable markets.

For this, the business model of the company is evolving from a publisher model that supports a one-time transaction, to a real estate ecosystem responsive to the entire real estate journey.

Built on long-term, trusted relationships, this strategy is based on four key pillars: Master Listings, Agent Solutions, Consumer Solutions and Real Estate Data Solutions.

Each pillar is based on different initiatives, fueled by a mix of internally developed solutions, acquisitions and joint ventures.

For example, market segmentation and flexible pricing support controllable yield growth for Domain’s core listings business.

And its recent acquisition of Realbase adds to the company’s suite of end-to-end workflow solutions that help agents grow their business.

Like any ecosystem, there is also value in how the different pieces of the puzzle fit together. Here, Domain leverages its data and expertise across all verticals to collaborate on new features and drive better results.

Better to buy an ASX 200 property

As a long-term investor with a bias for quality, it’s hard for me to go beyond REA.

The company has proven itself with a dominant market position, strong brand power, compelling network effects and promising global prospects.

REA’s share price has fallen 24% this year, underperforming the broader ASX 200 index which has fallen 7%.

But over a long-term investment horizon, REA shares shine. REA’s share price has nearly doubled over the past five years. And it’s grown more than 700% in the last decade.