Domain: CoStar Offers to Buy Australia’s Struggling Number 2 Property Portal

We raise our fair value estimate for narrow-moat Domain to AUD 4.20 per share from AUD 2.65 following the announcement of a nonbinding indicative proposal from wide-moat CoStar Group to acquire the business. Our upgrade credits 100% probability of the business being acquired for the proposed offer and reflects the known willingness on the side of Nine Entertainment, which owns around 60% of Domain, to sell the business, as reported in the media. Our stand-alone valuation for the company remains at AUD 2.65 per share. We don’t change our valuation for wide-moat peer REA Group, as we expect its economic moat, based on network effects and cost advantages will protect it from incursions by Domain, even under potential new ownership.