IPGA Delivers Strong Revenue Growth

The Australian stock exchange listed IPGA has just announced A$4.3m in revenues and A$719k in losses for the 2008 calendar year. This is a significant growth over CY2007, in which the company delivered A$676k in revenues and a slight profit of A$23k. IPGA owns and operates seven portal sites throughout Asia, most operating under the iproperty brand. While on the surface these look like strong results, the company had an annual operating cash outflow of A$1.4m and now has cash reserves of around A$1.4m. What is the next year likely to look like for IPGA?

IPGA operates seven sites throughout Asia under the iproperty brand. These sites include the market leading iproperty.com.my in Malaysia, gohome.com.hk in Hong Kong, iproperty.com.sg in Singapore, iproperty.com.ph in the Philippines, vrhouse.com.tw in Taiwan, realacres.com (operating as iproperty.com) in India and iLuxuaryasia.com – a regional luxury property platform.

IPGA also owns the iproperty.com expo that has real estate expos in Malaysia, Hong Kong and Singapore, a software product for agents in Singapore, and a print publication in Malaysia.

While the year on year growth seems stellar, the reality is the CY2007 numbers are only for a half year as the company only started trading in the second half of CY2007. Therefore, a look at the half year on half year growth is more appropriate.

2nd Half 2007 A$676,000

1st Half 2008 A$1,225,000 (81% growth)

2nd Half 2008 A$3,119,000 (154% growth)

Taking into account that IPGA acquired a couple of businesses in 2008; the underlying organic growth was around 40% in the first half of 2008 and around 140% in the second half of the year.

Over the course of the year, the business reported an EBITDA loss of A$581k. However, when we look at the half yearly EBITDA, we see that the business has a first half EBITDA loss of A$449k and a significantly better second half EBITDA loss of only A$132k.

Underlying these financials is strong growth in the KPI’s. At the end of the year, IPGA had 660,000 UV’s per month, 200,000 property listings, 90,000 registered members, and over 5,500 agent and developer customers.

CY 2009 will be an interesting year for IPGA. We expect them focus more on existing operations than on acquisitions, as they have in the past.

The business operates in relatively immature markets where there is still significant migration of print to online. Given they have market leading positions in some of these markets; we would expect to see continued growth in revenues over the next 12 months. However, this growth is unlikely to be as aggressive as it has been in the last 6 months – primarily due to the globally tough economic conditions.

The improvement of EBITDA from the first to second half of 2008 indicates that they seem to have their costs under control.

The key strategic challenge for management is whether to save money and try to break even (due to the uncertain economic conditions), or to aggressively chase growth in their dominant markets, thus creating a buffer between them and the other players in the market. I would adopt the second strategy, as a clear number 1 in any market tends to capture a disproportionate share of the revenues and profits.

The key operational challenges for management will be managing a diverse set of operations across 6 countries – with a head office in a 7th country, Australia – all with a relatively small cost base. Prioritisation will be critical with investment in operations required in those markets with the biggest up-side opportunity – e.g. Malaysia.

The other challenge will be educating the Australian shareholders (as it is listed on the ASX) about operations through Asia. As there are no operations in the Australian market, this may be a little challenging. At the time of writing, the share price was at a 7c, making the market cap just over A$7m.

CY 2009 should be an interesting year for this young business.

Classified Ad Ventures Pty Ltd is a small shareholder in IPGA.

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