Times are Tough, Portals Should Tighten their Belts

The credit crunch and the collapse of the financial markets can only mean one thing – the days of easy access to funding is well and truly over.  In a recent article on cnet titled “VC’s throw cold water on portfolio companies“, VC’s and angel investors are giving their portfolio companies a clear message – prepare for the worst.

So what sort of preparation as they talking about?  They are suggesting cutting marketing costs, reducing G&A costs and even laying off staff.  The way angel investor Ron Conway put it in a letter to his portfolio companies is “This is the equivalent to “raising an internal round” through cost reductions to buy you more time until you need to raise money again; hopefully when fund raising is more feasible.”

The other pieces of advice being offered include:

• If you need to raise money, start early and raise as much as you can
• Talk to any VC / investor you can – you cant afford to be picky
• Aggresively examine M&A opportunities as strength in size will be important
• Be very realistic on your valuation as they will fall
• Potentially consider the sale of your company to a corporate partner

On top of this, it is highly unlikely that VC’s, angel investors or the private equity market will be investing in new businesses (at reasonable valuations) any time soon. 

Therefore what does this mean for the property portal sites around the world?

I think the property portal sites (from a funding perspective) fit into 3 categories. Profitable market leaders, associated with traditional media companies, and independents

Profitable Market Leaders

Businesses like rightmove.co.uk. the REA Group, and Seloger are in the best positions in the current market conditions.  Firstly they are all profitable with significant revenue streams.  This means even if they have a fall in revenues (and this is unlikely), they will be able to trim they significant cost bases and maintain that cash flow.   This will enable them to remain on top and potentially capture new M&A opportunities if they are prepared to take a risk or two.

Even move.com in the US is well positioned.  They have revenues of around USD$260m, a slight loss but overall cash flow positive.  If times are tough they have a significant expense base from which they can find savings.

Portals Associated with Traditional Media Companies / Other Cashed Up Organisations

There are a number of portal sites around the world that are associated with large traditional media players.  Findaproperty.co.uk and primelocation in the UK and domain.com.au in Australia are two examples. 

These players are probably immune from the financial down turn as long as their owners are willing to continue to invest money into them.  The challenge will be is that these owners tend to be traditional media companies and their core businesses are under stress due to advertising revenue being down.  Therefore, at best, they will have a lifeline but will probably need to watch costs closely

Independents

Now is not a great time to be an independent property portal unless you are cash flow positive (and there arent too many of them) or you have significant cash in the bank (trulia.com is an example of this – they hae recently raised money).

If an independent isnt cash flow positive or doesnt have cash in the bank, then they need to rapidly preserve cash flow, raise as much as they can now and / or look to merge with other sites to increase their scale.  It will be hard for them to truly challenge the market leaders and it is likely that many of them will go out of business, be bought or will merge with other independents in the next 12 – 18 months. 

Therefore if i was an independent, i would cut costs, aim to reduce overall cash burn, look for merger / acquisition partners and make sure that i could ride out the storm.

The bottom line is that will be a very intestesting 12 – 18 months.

1. Times are Tough (part 2)

   I just wanted to follow up on the article i wrote yesterday with some more thoughts on what property portal sites should do in the current financial crisis. I came across a presentation from Sequoia Capita on startups and the economic downturn. The key messages are similar to the ones i wrote in the previous article however they have gone into more depth and i thought i would summarise them here for everyone. Read on for more ......

2. Strategies for Tough Times Workshop

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3. Strategies for Tough Times Workshop

   Whether we like it or not, today's operating environment is getting tougher and it is important that all property portal sites have the right strategies in place to ride out the storm and hopefully improve their market position in the process. We have therefore decided to hold the first Property Portal Watch Workshop to address just this very issue. Property Portal Watch, in conjunction with the team at Inman News, are proud to announce the free Strategies for Tough Times workshop to be held on the 6th January in New York - the day before Inman Real Estate Connect conference. In addition, the first 50 people to register will receive free passes to the Inman Real Estate Connect conference. This is one workshop and conference owners and operators of property portals shouldnt miss....

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5. zillow.com Lays Off 25% of Workforce, What Future Does it Have?

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