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Scout24 grows despite German property law

07/11/2016

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By Christo Volschenk; reposted with permission from AIM Group‘s Classified Intelligence Report.

An annual general meeting of Scout24 Group, held June 23 in Berlin, shed light on the impact of the German Rental Law Amendment Act on Germany’s 34,000 real estate agents.

The new law (introduced last year) requires that brokers must be paid by the person who ordered their services and cannot, for example, ask renters for a fee directly.

Scout24 Group’s Immobilienscout24 is the dominant real estate vertical in Germany, so the law has serious implications for the business.

In its annual report, Scout24 estimated the number of estate agents dropped by 10 percent in 2015, mainly because of the new law. Since then, agents have been invoicing landlords for services delivered — and not new tenants.

This resulted in many landlords opting to find tenants themselves, instead of contracting agents.

Scout24 said mostly smaller agents fell victim to the new legal situation, and warned the fallout might not have run its course. But, what it lost on the swings, it gained on the roundabouts: Immobilienscout24 lost agent clients, but won private advertisers (landlords). And this positive force is expected to linger a bit longer.

Scout24 Group is listed on the Frankfurt Stock Exchange. Three investors together own the controlling stake in Scout24 Group — namely, the two U.S. investment firms Hellman & Friedman and The Blackstone Group, and Deutsche Telekom. In addition to Immobilienscout24, Scout24 also has Germany’s second largest auto vertical, Autoscout24.

Revenue earned by the core business of Scout24 Group (Immobilienscout24 and Autoscout24) grew 14 percent to €390 million ($437 million U.S.) in FY2015 from €342 million in FY2014. Immobilienscout24 fiscals

Despite the structural shift in Immobilienscout24’s client base, the site grew its revenue handsomely in FY2015.

Immobilienscout24 earned €150 million from its core agents and another €34 million from its non-core agents for a total of €185 million (70 percent of all revenue came from agents). The remainder (€84 million) was earned through other services on the site, including fees from lead generation and advertising.

Revenue from agents was 16.5 percent up in FY2015, despite the fact that Immobilienscout24’s core agents dropped in number by 12.4 percent to 19,355 from 22,092 in FY2014.

Immobilienscout24’s EBITDA margin climbed to an impressive 59.7 percent from 55.9 percent.

Autoscout24 fiscals

Autoscout24 earned €43 million from its core agents and another €36 million from non-core agents for a total of €91 million (75 percent of total revenue came from professional sellers). The remainder of €30 million came from other services. Revenue from agents rose 16.7 percent thanks to an increase in the number of core agents to 22,298 from 19,774 in FY2014.

Autoscout24’s EBITDA margin climbed to 36.2 percent from 29.1 percent.

Looking forward Greg Ellis, Scout24 Group CEO

Greg Ellis, Scout24 Group CEO

In its annual report, Scout24 Group CEO Greg Ellis stated that “the classifieds business will be taken to the next level,” meaning the core business will be remoulded from classifieds into “market networks.”

What are market networks? As far as we could make out from the report, there are two dimensions to the concept. Firstly, the two sites will be “networked” closer (IT teams, platforms, user basis, products/services offered will all be moulded together). It is about integrating the two operations better to realize synergies, harmonize the two consumer propositions, and get better at personalizing offers and pricing models to consumers.

Secondly, the value chains of the two sites will be fully exploited and “networked” with one another.

“We are well positioned to benefit from the large ‘adjacent opportunities’ that expand our market…far beyond the core classifieds business, be it the entire property purchase or rental process, or the automotive value chain. In this context, our M&A strategy will focus on smaller bolt-on acquisitions along the value chain, strengthening our market position, or enabling us to further tap into adjacent revenue pools, or acquire new technological capabilities,” Ellis said.

© 2016 Advanced Interactive Media Group LLC / Classified Intelligence, reprinted with permission

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