Rent.com.au: Ltd Building Core Profitability While Investing for Growth

Business model
Rent.com.au generates revenue from advertising and from rental products, with revenue for the latter derived from RentCheck, which verifies a renter’s identity and checks their record against the National Tenancy Database, from RentConnect which delivers an integrated utility connection and $100 gift card to renters in conjunction with AGL, and from RentBond, RNT’s “move now pay later” product which helps renters bridge the gap from one rental property to another by financing their bond online. The company’s recently launched RentPay app platform allows renters total financial flexibility in terms of how they make their rent payments while giving agents and landlords surety of payments on time. It also aligns Rent.com.au to the tenancy period, giving it an opportunity to engage with its audience for longer and extend the relationship into other revenue lines including insurance, telecommunications, loan and finance products.

Strong advertising growth supports Q1 revenues
Rent.com.au delivered Q1 revenues of $0.843m, a 12% improvement on Q1FY21 and a little ahead of the $0.81m revenue generated in Q4FY21. EBITDA from the core Rent.com.au search business was $0.076m, its fifth consecutive positive quarter. RNT noted that renter product sales such as RentConnect and RentBond were affected by fewer renters moving in the quarter. Advertising revenue however drove the overall group result with a new quarterly record of $0.43m, an 82% increase on the same quarter in FY21. The company intends to focus additional resources on growing this revenue stream in coming quarters. Group EBITDA was a loss of $0.405m, an increased loss on the $0.214m reported in Q4FY21 with all the increase attributable to additional marketing, labour and other expenses for the RentPay transaction engine. RNT is in the optimisation phase for this product and recent changes to onboarding, including waiving the first month fee, had seen an improvement in the completion rate (the number of paying customers as a percentage of downloads).

Base case DCF valuation of $0.31/share (previously $0.35)
Our base case DCF valuation for Rent.com.au is $0.31/share (previously $0.35/share) following our earnings adjustment. Our valuation is predicated on our expectation that RentPay will secure 5% of renters on its platform by FY23 and 20% by FY30. Evidence of faster than forecast takeup of RentPay together with the expansion of RentPay into other transactional products will likely result in our forecasts being revisited.