Description

PropertyGuru is the #1 property listings website in Singapore (82% market share by web traffic), Malaysia (93%), Vietnam (82%), and Thailand (54%).  Because housing information in these markets is not standardized into a centralized MLS and agents pay for listings to get visibility for their clients’ homes (the REA/Rightmove model) rather than pay for leads (the Zillow model), this is a higher quality business than Zillow and more similar to REA/Rightmove (14x/11x 2024 sales respectively, vs. 4x sales for Zillow).  Selling agents pay because it helps sell their clients' homes faster/at a higher price, a much stronger value proposition than Zillow's business of generating home buyer leads for buyers' agents, arguably at questionable ROIs for many agents that try it (see Nails4's comments in the Zillow thread).

In fact, REA owns 17% of PropertyGuru.  The bulk of the stake was built when REA agreed to sell its Malaysia and Thailand businesses to PropertyGuru in May 2021 in exchange for shares (then valued much higher than where they trade today), which allowed PropertyGuru to consolidate market leadership in those markets; additionally, REA agreed to invest an additional $20 mm in PropertyGuru’s SPAC PIPE in July 2021, at a pro forma equity value of $1.8 bn / 12x sales, vs. a current EV of $0.4 bn and 3x sales today (REA later decided to also exercise their option to contribute an additional $32 mm to the PIPE at the time of closing).  REA’s CEO Owen Wilson sits on PropertyGuru’s board.

PropertyGuru was taken public by Bridgetown 2, a SPAC co-sponsored by Richard Li (son of Li Ka-shing) and Thiel Capital, Peter Thiel’s family office.  Matt Danzeisen, the head of Thiel Capital and also Peter Thiel’s husband, was the chairman of Bridgetown 2.  This was a high-quality SPAC, paying a high but non-bubble valuation for a good asset, getting 100% equity rollover from existing PropertyGuru shareholders (mostly TPG and KKR, who own 30% and 27% today respectively), and leaving the company with a good cash position (cash today is $220 mm, with no debt). 

Nonetheless, post de-SPAC, the shares have fallen into no-man’s land, mainly (I think) driven by the lack of liquidity.  The float is very small because no insiders want to sell at this valuation; as a result, daily liquidity averages $60k and no major funds can buy.  If all named investors and insiders listed in the 20-F are excluded from the float, then the float is only 6.4% of shares outstanding, or $40 million.

I don’t know exactly how this chicken and egg liquidity problem gets resolved (takeout by REA, or one of its PE sponsors?), but it does offer an opportunity for small funds to buy at a low price.  Meanwhile, value compounds as revenues prospectively grow at a mid-teens type rate, margins continue to grow, and the company generates cash.

For some context on valuation: in 2019, PropertyGuru tried to IPO in Australia at a $930 million valuation, when revenues were at $65 million, or a 14x multiple (the offering was ultimately cancelled because market reception to the 14x multiple was weak, and management wanted to try again at a later time and in a different listing venue); today, revenues are at $118 million but the EV is only $386 million.  In September 2020, the company raised $220 million from TPG and KKR, with valuation undisclosed.  And the SPAC was done at a PF equity value of $1.8 billion.

In contrast to the stock price, PropertyGuru’s business has generally been performing well, with the exception of Vietnam, where the property industry as a whole has suffered from government intervention to cool the market (but Vietnam’s overall economy remains strong and promising, and the property market should rebound early next year).  In 2Q23, total revenue grew 12% y/y, which was comprised of 22% growth ex-Vietnam and Vietnam declining 27%.  2Q23 Adj. EBITDA margin was 12.5%, up 1200 bps y/y; if we exclude the S$3 mm fintech and data services loss (representing non-classifieds business lines under incubation), Adj. EBITDA margin was 20.5%. 

PropertyGuru is guiding full-year 2023 revenue at ~S$161 mm (base currency is Singapore dollar, 1 USD = 1.37 SGD) and Adj. EBITDA at ~S$13 mm, an 8% margin; again, if we add back fintech and data services losses, Adj. EBITDA margin would be 14%.  Driven by mid-teens revenue growth continuing to add scale to the business and helping leverage fixed corporate costs (which are unusually high at ~37% of revenue), I estimate 2027 Adj. EBITDA margins to reach 30%, which would still be well below REA’s Australia margins of ~67% and Rightmove’s ~74%.  If we exit in 2026 at 15x NTM EBITDA, which would represent ~4.5x sales, well below the 14x/11x sales for REA/Rightmove, that would get to $6.87 per share, a ~22% 3-year IRR on our investment.

Catalyst

Continued revenue growth

Margin expansion as high corporate costs are leveraged

Possible REA takeout?