VIDEO: Here’s why online classifieds site Mitula just got a big takeover offer
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Spanish online classifieds publisher Mitula Group soared 73 per cent on Thursday after announcing a takeover offer from Tokyo-listed real estate data business LIFULL.
Mitula’s board “unanimously recommended” shareholders vote in favour of the deal, which would give them 0.0753 LIFULL shares for each Mitula share — equating to about 85c per share.
The shares jumped from 45c to 78c after the announcement — before closing the day at 74c.
LIFULL wants to merge Mitula with its European Trovit classifieds sites Trovit to “create a significant global player in online classifieds operating in 63 countries with 170 million visits per month”.
Why is Mitula so attractive?
Top tech expert Tim Knapton explains in this video guide:
Remember those crazy early days of the internet, when web-based businesses were valued primarily, sometimes solely! on their site traffic?
Well if that were still the case, online classifieds operator Mitula (ASX:MUA) would have a valuation much in excess of its mere $95 million market cap.
Last financial year its portfolio of real estate, auto, employment and fashion sites attracted over 800 million visitors across over 50 countries.
That compares, for example, with domestic traffic totals of about 400 million for Seek, 60 million for realestate.com.au, 40 million for Domain or 30 million for car sales.
The vast difference in valuation with those online peers is because Mitula’s running many more sites, which have much lower market shares, which in turn means it has much lower yield, or revenue per user.
But the company’s focus in recent years has started to shift from pure maximisation of the breadth of its site portfolio onto also optimising yield, which last financial year (to December) rose by 15 per cent.
In turn that generated 20 per cent growth in revenues to $33.6 million but EBITDA earnings fell slightly to $11.7 million partly due to traffic issues and that send the stock into a tailspin, falling over 30 per cent in just a few weeks.
More recently, though, the company has reported a further 17per cent increase in revenue and a 27 per cent boost in site traffic for the opening March quarter of this financial year.
And in April both those growth rates increased significantly to respectively 45 per cent and 39 per cent.
Until Thursday’s takeover offer, the stock had not staged much of a recovery.
The likelihood is that as the year progresses there should be further evidence that the company’s “Closer To The Transaction” strategy is working, in other words it is extracting greater value from each site visit.
To implement that strategy though, the company has needed to invest in substantially more staff to populate the sites with more transaction-based products and services, especially in lead generation.
Those products and services now deliver almost a quarter of total revenue, with the rest mainly coming from more commoditised cost per click paid advertising.
What that means is that not only is there significant scope for further yield improvement but also that there should also be a delayed improvement in margins.
Mitula’s margins are actually very strong but still a good way below those of domestic peers with higher yields.
The company will remain sensitive to the effectiveness of its search algorithms and indeed its relationship with search giant Google but if it can maintain anything like its current rate of traffic growth it faces significant earnings upside.