Pros and Cons of RNT - Dog or Gem?

As part of my research on RNT I've looked at all the presentation and done a lot of research myself. I'm fairly familiar with online marketplaces and classifieds/subscription style models. I am not a real estate agent, so don't have a view on specific usage of the product or competitors, however I have spoken to a number of agents about both rentals and sales (so covering both REA/Domain and RNT type businesses) and I have spoken to a number of private investors who manage their own properties. I've also spoken to a few people who have businesses providing apps/tools to private landlords looking to manage their own properties.

I thought I would summarise a range of things I'm think about this.

Pros:
1. RNT appear to be the most advance in specifically targeting this market segment. RNT take the view that rental property listing are not a focus of REA and Domain. I agree with this assessment. (However it could be because the market really isn't that big).

2. Mark (CEO) and his core team appear to be very good. Mark has been working on this for a long time.

3. Product areas. Mark and the team have done a lot of thinking about the segments of the market and how to generate revenues from this. This includes monetising the agents, private landlords as well as private tenants.

4. At this stage they have developed some unique products (eg RentBond). I broadly like the overall product offering, however (as a Con) a number of agents and private landlords have commented that they don't really want tenants that can't afford to pay the bond upfront. (There is an issue when people are moving between properties that they may not have enough to cover the new bond before they get the old bond back. This is probably the best use of the product).

5. Tenant products - I like that they are developing products for tenants as well (e.g. ability to sell a tenant a "tenant report" so the tenant can see the reports the landlord gets.

6. There is probably a bigger opportunity that they don't really talk about, and that is providing property management tools/apps to private landlords who want to manage their own property as well as developing a fully blown property management style business to compete with landlords. There is obviously a huge risk with this (as they then start competing with their Real Estate Agent customers).

Cons:
1. The business doesn't have enough traction at this stage. Monetisation is minimal. They have started trying to charge agents a subscription. But the Sep Qtr showed minimal (if any) revenues from this. We need to see some growth in the figures for the December Qtr to see if this is getting traction. I think this is going to be a long slog to get agents to sign up. You may get a few agents paying to "own" suburbs. But I don't think this will be a lot.

2. I'm not 100% convinced that the market is as big as RNT says it is. I've posted on this previously. I think the private market is probably between about 1/3 and 1/2 of the size the RNT estimates.

3. Traffic - I'm not convinced the traffic they get to the site is high quality. They get low page visits compared to claimed traffic. I suspect they are buying traffic that bounces off quickly and may not be as relevant. You would also expect that a portion of their traffic is people checking their property listings. This traffic isn't relevant for what RNT need to be showing.

4. Not seeing any evidence of leads coming from listings. The agents I spoke to get significantly better results from REA and Domain. All have said that unless they get reasonable leads from RNT, then they won't subscribe. They effectively get the rental product for free from REA as it is part of the subscription they have for property sales.

5. Private landlords can list with Domain (directly) and with REA (via "agents"). There are a number of people that facilitate private landlords listing on REA. People want to list on REA as they get heaps of inquiries from there. They will list for free on RNT because it is free. They won't pay RNT unless they get inquiries.

6. Staffing - They have put on a lot of staff very quickly. They have probably made a few hires that won't work/perform. The scale of business is changing quickly. The cost structure will be high.

Some other thoughts on their strategy
In a two sided market you need to build 1 side first. It is the supply side (ie the properties). They give free agent listings to start building search traffic. You can't get private listings without traffic. You can't get traffic without listings. This is why you give it away for free to agents and just list all their properties. They need to really cover 100% of the REA and Domain listings.

They then need to promote the site like there is no tomorrow to make sure renters are aware of it. This is expensive and time consuming.

People forget about the time when PBL attempted to take on REA and build a sales portal (this was when PBL owned Channel Nine). This was called MyHome and was in 2007. REA was no where near as strong then as it is now. But also the online market wasn't as developed then either. PBL had a number of agents on side as part of this. I seem to recall at the time that PBL put something like $30m into the venture. It failed dismally.


Overall
I think this is going to cost a lot more to build and revenues will be a lot slower to grow. The risk is high.

RNT has a market cap of $30m and effectively no revenues and a high cost structure. The risk is high. I suspect they will burn a lot of cash before traction is obtained.

I'm not yet convinced (for me, the Cons outweigh the Pros, on a risk/reward basis). I'm looking for some decent traction to show any signs that the business strategy is working.

But if they get it right, then there is potential for a profitable business. How big it can be is another question.

I'm happy to get input and thoughts from others on all the above (and anything else as well).

Cheers
Marv

DISCLOSURE: I don't hold RNT but am researching it.