I subscribe to eureka and below is a transcript between RNT CEO...

I subscribe to eureka and below is a transcript between RNT CEO and Kohler.

Published: 28th July 2015, 03:00pm
30 mins
Alan Kohler speaks to Rent.com.au CEO Mark Woschnak.
THIS IS AN UNEDITED TRANSCRIPT
AK: G’day and welcome to another Eureka Interactive event. And today I’m talking to Mark Woschnack who is the CEO of Rent.com.au, a new listing. It came on to the market in June. It was an IPO through a back door listing for an exploration business that I can’t remember the name of, but, anyway, it doesn’t matter because it’s Rent.com.au now, Mark. Welcome. Thanks for joining us.
MW: Thanks, Alan. I’m glad to be here.
AK: Now, you started your business in 2007. And what was your background before that time and what was the idea that you had?
MW: My background has been 25 odd years in property and in information services. And about 10 years ago…
AK: What do you mean by property? What sort of… In what way?
MW: I was a real estate agent once, investment property services, some investment loan type service businesses and also I launched the first sort of real estate online portal with Telstra back in the late 1990s.
AK: Did you? What was that called?
MW: Real Web. Yeah, that was…
AK: Real Web? That died a death.
MW: It died a death, tech crash.
AK: Tech crash.
MW: It wasn’t established quite well enough and of course the Realestate.com.au at the time took the power and it created that space.
AK: They did. Indeed, they did. And now, you’re having a crack at them which we’ll – that’s interesting – we’ll get to exactly what that involves. But so just tell us, what was the idea that you had in 2007 that you thought was a problem that needed to be solved?
MW: Yeah, two things really. The first is… Well, actually I didn’t start Rent in 2007, but in the early 2000s I saw a lot of land grab going on for property for sale type portals, like Realestate.com.au, Domain and so forth, but the big sector of renters and rental property was still largely underserviced and ignored and I think that still exists today, so that was the first trigger to look at something.
AK: Well, except that REA did then and still does obviously do rent; you know, there’s a rent tab on REA.
MW: Yes, there is. And I think the focus now for us is creating an entire site, an entire business around renters, the renting process and it’s a very different audience demographic being 18 to 35 [years], not home buyers. It’s a different process, it’s a different division within real estate agencies, so in itself it’s a completely different business being renting. And then there was a worldwide trend towards niche or vertical market portals and so by marrying that trend of providing richer and deeper services via a vertical portal and the renting sector that was a good blend of my skills and background.
AK: Right. So when did you start it and what did you do in the early days? How did you go about it?
MW: So we launched in 2007 and that was very much about first building a working prototype, proving the model, getting a lot of industry support in terms of property upload and management software providers and a core group of real estate agencies that valued the proposition. So we…
AK: And was this in Perth? You were living in Perth. You are still living in Perth. Was it in Perth at the time that you did it?
MW: Yes, we are established, founded out of Perth and so it was a classic case of chicken and egg from back then which was building content, building IT, building services and blending that with the right amount of traffic to renters whilst we were growing in an upward spiral.
AK: Yeah, because you have to get the properties in order to get the renters and to get the renters, you have to have the properties.
MW: Yes, that was a big task for us. So basically there are about, say, 8000 property management businesses in the country of which we’ve now got 6200 now registered to our business and they are uploading…
AK: Your prospectus said 5600 properties, so you’ve got another 600 since the prospectus.
MW: We’ve been cracking. So yeah, we have and so the growth in those agents and that rental content basically has now given us about 80 per cent of the entire agent national listings market share which is a great critical mass for us to launch in to our next phase.
AK: Well, I can’t help noticing that they list for free, right, so why wouldn’t they? The question is who pays you if the listing agent…? Because with REA, obviously the agents pay REA quite a lot of money.
MW: Yes, they do. So we… Again, this is about the focus on rental property and what the property management divisions want. So we have four key revenue streams. The first is the products and transactions that we sell to renters in the renting process, so today, and it has been for a long time, the renting process is full of frustration, it’s time consuming and it’s difficult for most people in that process. So there’s a lot of transparency, there are a lot of services to come. We see about 20 transactional services in the renting process of which we’ve bought about four.
AK: So you’ve got rent bond, RentBond, RentConnect, RentCheck, RentReports, RentQuotes.
MW: Yes, good branding.
AK: So they’re all your products, right?
MW: Yes.
AK: Can we get on to those in a moment, exactly how they operate? But do the listing agents pay you anything at all?
MW: Yeah. So the renter revenue is one stream. There is revenue from real estate agents. So in particular right now, most real estate agents are looking to target more renters and more private landlords and in particular building their rent rolls. The rent rolls are their core asset in future sale. That provides the monthly cash flow in terms of the property management fees to keep a lot of the business turning around. So there’s a lot of focus on property management as a new profit centre.
AK: Yeah, but how do you charge them? How does that actually work?
MW: So we charge them… we forecast on average about $200 a month in revenue compared to about…
AK: Two hundred dollars’ subscription?
MW: Yes.
AK: So you’re not charging them to list a property? You’re charging them a subscription to use your site?
MW: Yeah, basically…
AK: But that’s what REA does, right, basically?
MW: Yeah, broadly. So we have two tiers. There’s a free level at which you get a limited range of services. Then there are two paid product plans above that which then give agents the ability to get better featured listings, better promotion to renters, better promotion to landlords and a whole range of additional services, like our statistics and other features in the back end. So there is a strong vendor paid component there which allows property managers to recoup fees and we’ve structured that in a new way to enable this particular service to get to a nil cost for agents. So the ballpark…
AK: You mean they can pass it on?
MW: Yes.
AK: How do you structure it so they can pass it on?
MW: Well, the vendor paid concept is sort of well-proven in the property for sale environment where if you list your property for sale, the agent will suggest a marketing package of X thousand dollars…
AK: Certainly will.
MW: …which is passed on to the home seller. So there’s no different for a landlord who wants their property promoted quicker and let quicker.
AK: Right. I see. Okay.
MW: So broadly, the revenue from agents is about $200 per month and there are upgrades and products above that and then we see about a market of up to 8000 agents of which we’ve got 6100 currently or mostly for free, but it’s that database of agents that are now waiting or have been waiting for us to ramp up the volume in terms of traffic and consumer brand. So once we generate greater traffic to the site and we’ve been averaging about 200,000 unique visitors a month for the last 12 months and this month we will hit a record of 300,000 and we see a market place of 500,000 within the next six months to 12 months and then eventually about a one million renters to our site per month. So last year in FY 2015, we had about over two million renters to our site which is over 30 per cent of all renters, so we’re already at a good positon and now we’re in to acceleration mode.
AK: But isn’t the most important metric the number of rentals that you are sort of catering or at least... or intermediating, as it were?
MW: It is. So the opportunity for us as a portal is fundamentally to create the market place for all rental property. Now, in doing that, we have to do two things. We have to get the real estate agent listings and we have to get the private landlord market listings. We’ve now got 80 per cent of all real estate agent listings and we will be focussing over the next 12 months to get the balance of that 20 per cent of that market. And at the same time now, our big opportunity is to open up the private landlord market.
AK: And how much of the market is private landlords?
MW: Most people are astounded to understand that nearly… it’s 46 per cent statistically of all rental property managed in this country is managed by non-agents and that’s private landlords, that’s corporates, that’s basically anyone that’s not an agent. So there is an enormous market out there.
AK: I am astounded. That’s astounding.
MW: It’s a big figure. So private landlords today know that they can’t list on Realestate.com.au. You have to be a licensed real estate agent to put your property there. So going to Realestate.com.au…
AK: So where do they list?
MW: So this is the whole problem. This is the opportunity for Rent. There is no reputable, reliable, well-structured site with the services that landlords need in the country. So they’re all in offline print media and some miscellaneous, ad hoc sites around the country. So half the market is yet to come online.
AK: So how are you going to get them?
MW: Well, this is a genuine print to online shift that we want them to come to Rent.com.au. So our IP over the last five years has been learning where are these landlords? It’s a very fragmented audience, not easy to identify, but we know how we’re going to do it. We are going to be targeting all of those mediums where private landlords exist with very strong telemarketing, TV and marketing campaigns, very strong online positioning and things like tradeshows, journals, alliances and so forth.
AK: So are you going to give them free listing?
MW: We started a campaign to provide landlords with a free listing. So at the moment we are about creating the market place which is the most listings, whether they are agent listings or landlord listings. The most important thing for the success of this business or any classified portal business is to provide the consumer with what they want. The consumer in this case is the renter. So the person who’s been told they’ve got four weeks to six weeks to vacate their premises is in a fluster and basically wants two things. One is to go to a site which has the complete range or the most range of properties to choose from. It doesn’t matter whether they are agent or landlord listings; the renter just wants to find the property that’s suitable for them. On top of that, they then want all the services that they need in that renting process to make it quicker, smoother and easier and so forth. So for us right now, we’ve got a very strong critical mass to launch forward with and we are opening up free listings to private landlords to get that critical mass. That’s not going to last forever. And thereby we are creating the market place and the best service for renters.
AK: Right. So for the time being… So because at the moment if you’ve got… you’ve got 80 per cent of the 54 per cent, haven’t you?
MW: Yes.
AK: But I suppose the advantage for you, if you can call it that, is the private landlords, the non-agent landlords they haven’t got their properties on REA either.
MW: No. So that’s the unique opportunity for us. Our strategic goal is the market place and it’s very similar to what Carsales did. So Carsales basically got the dealer network of cars and then they opened up to private sellers, creating that market place and then of course all the services for car sellers and buyers.
AK: But if REA opens up to the private landlords, you’ll be blown out of the water, won’t you?
MW: No. So we’ve developed Rent as the market leading, dedicated rental property portal. We’ve got a very strong level of industry support. We’ve got a very good brand out there. We’ve got very good organic traffic to the 18 to 35 year old market. Statistically already about 46 per cent of our renters have not been to REA and over 60 per cent have not been to Domain, so this is a genuine, unique, additional audience that we’ve positioned ourselves to. REA has made it very clear in their press, in their announcements to the industry that you must be a licensed real estate agent to list property on their portal.
AK: Yeah, but they could change their mind tomorrow.
MW: They could.
AK: They could do anything they like.
MW: They could and we’ve positioned ourselves very strongly with very strong backing and a good positon now to become certainly a top three real estate site in the country and our position as the number one dedicated property.
AK: We are getting a few questions from the audience, thanks very much. A couple of people want to know, how much money are you making?
MW: How much money are we making?
AK: Yeah.
MW: Well, we’ve just listed on the ASX and raised $5 million.
AK: Yeah, that was $5 million, that’s right, but…
MW: And we are…
AK: And you previously, before that you raised $10.3 million.
MW: Yes, over the seven years. So we have been classically in the building phase. That’s been our content, our IT, our products and services. We’ve not yet allocated capital to sales and marketing.
AK: But you are making some revenue, aren’t you?
MW: We are making some revenue and those are all internal figures and for our internal forecasts. Where we are now…
AK: I’ve got it here. It’s $172,000 for the 2014 year. It was in the prospectus. That’s not very much.
MW: No. Combined… Our revenue for…
AK: Isn’t that right?
MW: No, I don’t think it’s right. I think it’s…
AK: $172,000 revenue, $751,000 costs, does that sound right?
MW: No, our figures are higher than that, not much higher and it’s been less than half a million [dollars] in revenue to date and that is basically organic growth, organic sales and so forth. We’ve…
AK: But what are you selling for that revenue?
MW: So we haven’t. So what we’ve been focussing on is our content, our IT, our products and services development, so where we are now is basically putting our sales and marketing teams on. We are promoting increasing our traffic to the site. That starts to filter through to enquiries, to agents, to landlords and that is what will make them subscribe to the subscription plans and additional products. Likewise, we are now focussed on increasing the range of those from four existing products to six and ten and twelve over the next six months and 12 months for renters.
AK: Right.
MW: So the upside is enormous for us in terms of the 50 per cent type EBITDA margins we see similar to the other portals and the take up of our existing agent database and the one million landlords in the country.
AK: But that’s all ahead of you. All you’re doing at that moment is putting on cost, aren’t you?
MW: Yeah. It’s revenue producing cost. This is expansion rate.
AK: We hope.
MW: It is.
AK: David says, there are other recognisable brands for these kinds of real estate sites. What are you planning on re marketing push for your own name? What’s the marketing plan?
MW: Broadly, two phases. The first plan is to increase our traffic to above 500,000 unique visitors a month. We have a very strong online position and our ability to get very low cost per acquisition from renters is good. So we will focus for the next six months to nine months on increasing our traffic to much, much higher figures.
AK: What’s your social media strategy?
MW: It’s a strong social media strategy.
AK: Because that’s where all your customers are. That’s where they’re consuming.
MW: Yeah. It’s a classic 18 to 35 year old demographic. We have those campaigns identified and then after six months to nine months we will then be focussing on our national branding campaign and that’s creating the brand offline and we forecast to use TV and so forth, so and that’s to get the brand aware to private landlords and to other agents and generally as a portal site out there, given that online branding is really only seen when you’re on your computer.
AK: I should have asked this at the start, but that $5 million in the IPO, how much of the company did you give away or did you sell for that $5 million?
MW: It was about 28 per cent. So we had basically valued our business at a cash only valuation of the $10.3 million to date.
AK: Oh, so that was… the pre money valuation was $10.3 million which was cash only. Is that right?
MW: Yeah. So we…
AK: That’s a wonderful thing. I’m happy about that.
MW: It’s upside from here.
AK: Yeah. Well, because the stock is now down to 16.5 cents.
MW: Yes, it’s been trading around 17 cents, 18 cents. Today it dropped.
AK: Today it’s down to 16.5 cents, having come on at 20 cents. So everybody, we’ve got to… it’s a discount to cash then. Is that right?
MW: Discount to cash. Overall it would be nice to see our share price above our listing price, given the way the market has been in the last four weeks, but in a grand scheme…
AK: Well, just wait till all our customers have bought in, would you? If they do. I don’t know.
MW: If they do. But that puts in perspective for us. We’ve been building this for seven years with a lot of strength and with a very robust and strong position to move forward. It is over the next two years to three years as we allocate this capital that brings our breakeven in to about 18 months’ time at much higher levels and it’s that escalating revenue that comes from repeat business from landlords who have used the site once, from agents that are increasing their usage of the site in terms of vendor paid products and so forth, and for renters…
AK: Well, as long as they do. I mean as long as they do start paying you the $200 a month.
MW: It’s very clear to us that the real estate agent market wants access to landlords and property management services.
AK: Have any of them started paying you $200 a month?
MW: We do have paying agents, yes, in certain areas. The problem we’ve had to date is that the level of traffic has been very strong in some areas around the country, but very weak in others and that’s purely a function of not having a marketing campaign to significantly brand all the way around the country.
AK: Right. Wes asks an interesting question, you have a holiday properties tab on the site. Is this a priority? Outside of Airbnb, there’s not a lot out there for holiday listings on a national basis.
MW: Yeah. Our current focus… We do have the tab and we do get real estate agents that have holiday listings. There are some private landlords that put their listings there, but it’s not a primary focus for us in the next 12 months. We’re going very hard to focus on residential leases for the typical renter market, in the first instance. Long term we see ourselves providing, Rent.com.au as the rental property market place and that will include things like Lease.com.au which is an asset of ours for industrial and commercial property. We will have some retail property. We’ll have holiday accommodation. And basically cover all those spheres of rental property.
AK: Including high rise apartments, I presume, of which there are quite a few now.
MW: Including high rise apartments, yes.
AK: Des says, what’s your traffic? How many listings do you have? Do you have targets for either?
MW: We do. So we currently have at any one point in time 58,000 current, active listings and that’s from… that represents that basically that 80 per cent market share of agent listings. We are now focussing on introducing the landlord listings. In terms of traffic, this month we will get to about 300,000 unique visitors and we will be on a plan to increase that steadily in that same sort of chicken and egg growth over the next six months to get to above 500,000. And thereafter we will make moves with our broader marketing campaign to the one million unique visitor level.
AK: Right. And the 58,000 I mean that presumably can grow quite a lot. What’s that? If that’s 80 per cent of the 54 per cent, there’s roughly double that number of rentals.
MW: Absolutely. The market size is probably anywhere between 80,000 and 120,000 listings per month, given that 54 per cent type equation.
AK: And how long are listings typically on a site? How long till something is typically rented?
MW: In terms of time on market, it’s typically about… it depends. Being a national portal, there are different results for something that might be let in Melbourne as compared to Perth as compared to Darwin. I think anywhere between two weeks and four weeks is typical around the country at the moment.
AK: Right. And since you started in Perth, do you have a geographical weighting towards Perth or are you more evenly… you’re evenly spread?
MW: No. We are a national business and, in fact, 90 per cent of all our business comes from the east coast.
AK: Right. So when do you think you’ll break even? Do you have a time in mind when you’ll do that?
MW: We are targeting FY 2017.
AK: FY ’17. Right.
MW: Yeah. So within about 12 months to 24 months.
AK: And have you got enough cash now to last till then?
MW: Yes.
AK: Definitely have?
MW: Yes. Our plan is very clear. We’ve isolated three core objectives. Those are all revenue producing objectives. So we have the opportunity to grow under this plan, but at the same time, as we saw with the other leading portals like Seek, Carsales, REA and so forth, this is a wide, open space and is a big market space to grab, so we will be looking to accelerate our opportunities. Opportunities are already coming to us in terms of that accelerating growth and the board will look at maximising those and will require further capital if we do that.
AK: Are there any competitors apart from REA?
MW: No. So we have no direct competitor in terms of a dedicated rental property website, so we’re in a good position, basically, we see to lock in our first to market mover advantage. This is a brand to renters, not homebuyers. It’s already well-ingrained with nearly 30 per cent of the population having used our site. And one of the key differences for us in terms of long term positioning and owning the rental sector is that there are seven million renters in the country representing about 30 per cent of the population who, on average, turn over every 12 months. So this is a…
AK: Really, on average, every 12 months?
MW: This is a high turnover…
AK: That’s terrible. Poor buggers.
MW: So this is a high turnover business of nearly a third of the population needing to come back to our site.
AK: Every 12 months.
MW: Every 12 months.
AK: Dear, oh, dear. It’s horrendous.
MW: I remember the days of renting and it’s not the reason why we did all this, but you know we see the stories of people having to move two or three times in a year, so it’s very important for us to provide great services for the renting community.
AK: Well, I’ve run out of questions. It’s been great talking to you, Mark.
MW: Yeah, thanks, Alan. One of the great things for this business is that there are a lot of commentators suggesting that the renting sector is going to grow significantly from 30 per cent of the population to 40 per cent and 50 per cent.
AK: Oh, because no one can afford to buy a house anymore.
MW: Well, it’s not just housing affordability, it’s lifestyle trends, it’s living trends, it’s investment trends and we see that in most major western capital cities elsewhere around the world. Already Darwin is at greater than 40 per cent, Sydney at about 37 per cent and we see no different occurring here. So over the next years we see enormous growth in the renting sector and that’s why we want to lock in the brand for renters, being the advocate for them, and providing the right level of deep and rich services in renting.
AK: But just back to REA, I mean I was sort of asking you before. You kind of played a straight bat on it. I mean are you vulnerable to REA saying, oh hello, what’s this mob doing? They’re coming at us. They’re taking a bit. We’ll bloody… And the elephant rolls over in bed and squashes you.
MW: We’ve got a good and strong position. We’ve got capital to secure that and lock that in. REA has made it clear at this stage that you must be a licensed real estate agent. Who knows what they’re going to do? At this stage, we are running very, very hard to lock in our space. Most importantly though, we are not in the market place competing with REA. We don’t go to real estate agencies to say, don’t use that subscription and just use Rent. We are a genuine, additional market reach audience for a new audience of renters and landlords which are currently not being addressed and leads enquiries from that market are not currently getting to those agents.
AK: Right.
MW: So we see we’re not going to worry about REA. We’re going to be firing hard on our plan. It’s very clear. We’ve got a great ability to own this space and provide the range of products and services and make life easier for renters.
AK: Well, thanks again, Mark. Thanks for coming in and it’s been great talking to you.
MW: Thanks, Alan. A pleasure. Cheers.
AK: That was Mark Woschnack who is the CEO of Rent.com.au which listed about a month ago on the ASX and that’s it for today’s Eureka Interactive. I’ll see you next time.
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