A quick comment on one company I have liked for a while but repeatedly elected not to invest in; Rent.com.au Ltd (ASX: RNT).
Its premise is that it is a scalable online advertising platform that a) attracts a unique audience and its products have great cost-benefit ratio for landlords, and b) with rentconnect, online renter CV and other services, it is easier and quicker to apply + be approved for houses, and relocate (tenant benefit).
Heaven knows the entire rental industry is paper-bound, people-heavy, and extremely painful to deal with, either as landlord or as tenant. It is in dire need of disruption. I can get behind the premise, and the product, and I would like to own Rent.com.au, but I am not investing for several reasons:
- Cash expenditure is obscene. Rent.com.au is earning about $1.4m in annualised sales, burned $6m cash (due to $7.2m in employee costs) at the half year, and has $3.3m cash on hand. Only $500k got spent on development and the company has had persistent heavy cash outflows in spite of its modest revenues. For one thing, the heavy employee expenditure does not look like the sign of even an early-stage scalable advertising platform.
- Unconvinced of a genuine advantage. The ‘we rent your property 8 days quicker on our Smartplan’ looks good. However for a company that has 90% of all real estate agent listings and just 5% Smartplan penetration, Rent.com.au is experiencing very slow growth in quarter-on-quarter revenues. Either execution has been poor (possible), the product is not as compelling as it appears (also possible), or attracting customers to rent.com.au is much harder to achieve than expected (also possible).
- Time taken to achieve results. Actually the company has hit/exceeded its goals of unique viewers etc since listing, but with that cash outflow and modest growth, I’m not willing to run the risk of going backwards with my investment in the hopes of going forwards.
I think the product is good and the potential to outperform over the next 5 years is there, but even at today’s market capitalisation of $13m I’m not willing to take a risk on Rent.com.au.
I’ll be waiting for the company to get closer to its break-even goal date, and seeing how the new CEO/ cost cutting goes before revisiting it.
I have no financial interest in any of the above companies. This is a disclosure and not a recommendation.
The 10foot review of my portfolio performance over the past quarter will be out this weekend.