Frontier Digital Ventures is mimicking the Carsales, REA Group, Domain online model in developing countries

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By Tim Boreham - 
Frontier Digital Ventures ASX FDV Carsales REA Group Domain online developing countries

In developed countries such as Australia, consumers have been long accustomed to shopping online for big-ticket items such as property and cars.

As a result, companies such as Carsales (ASX: CAR), REA Group (ASX: REA) and Domain (ASX: DHG) have become ASX success stories, with multibillion-dollar valuations.

These portals have helped erode the previous low levels of trust between buyers and sellers. Arguably, these businesses are also mature and further growth will be hard to achieve.

But can their model be replicated – and even improved on – in developing countries?

A Malaysian-based owner and operator of online auto, property and general classified marketplaces, Frontier Digital Ventures (ASX: FDV) believes that’s exactly the case.

Taking on the developing world

Since listing in August 2016, the company has expanded its reach across its three key regions of Latin America, greater Asia and Middle East and North Africa (MENA).

As founder and chief executive officer Shaun Di Gregorio notes, the target markets equate to 882 million people and generate a collective A$4 trillion of GDP.

Internet and digital penetration in these regions are less than in developed countries – averaging 68% – but is also increasing rapidly.

Frontier Digital operates across three regional businesses: 360 Latam (Latin America), MENA Marketplace Group (MMG) and FDV Asia.

Each division consists of several fully or partly-owned portals, all with market-leading positions.

These include Infocasas (Uruguay, Paraguay and Bolivia), Fincaraíz (Colombia), Avito (Morocco), Zameen (Pakistan) and AutoDeal (the Philippines).

In late 2021 the company moved to full ownership of the general classifieds site Encuentra24, which operates in four central American countries including Panama and Cost Rica.

Moving beyond classifieds

While Frontier Digital Ventures’ business model is weighted to classifieds, it has moved closer to facilitating the actual transaction – a part of the value chain developed market operators generally aren’t involved in.

This gives rise to commission-style revenues.

“The opportunity to help consumers transact beyond ‘search and discover’ in emerging markets is significant and it is where we are focused,” Di Gregorio says.

For instance, the company is rolling out Iris, to link property developers with selling agents and brokers.

Di Gregorio says the initiative addresses the problem of property developers pushing their own brands, which creates a disconnect between developers and intermediaries and a lack of transparency for consumers.

Positive cash flow

Frontier Digital last month reported third (September) quarter operating revenue of $20.9 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $2.2 million.

The performance marks the third successive quarter of positive cash flow at group level and the fifth positive consecutive quarter for all geographic regions.

360 Latam contributed a record $13.8 million, up 23% with MMG chipping in $2.4 million (up 19%) and FDV Asia generating $1.8 million (up 45%).

Associate entities in FDV Asia contributed $3 million.

Unusually detailed for an ASX company, the quarterly accounts show Avito was the biggest profit contributor, with EBITDA of $630,072, representing an EBITDA margin of over 32%. Acquired two years ago, Avito had not been profitable for the previous ten years.

Encuentra24 managed EBITDA of $467,588 (up 16%) while Fincaraíz reported $410,679 (up 4%).

The quarterly numbers perpetuate the positive trends of the June half, with group revenue of $31.2 million, up 7%.

While the bottom line for the half year showed a 9.9 million loss, the company reported EBITDA of $907,000 compared with a $2.5 million deficit previously.

“In the first half we worked hard in challenging economic conditions to ensure all of the geographic regions were operating sustainability,” Di Gregorio says.

A lowlight was the Zameen operation, which has underperformed because of Pakistan’s deep economic problems.

Di Gregorio says while he’s not making any promises about profitability, the latest data shows Zameen is “moving in the right direction”.

‘Interesting and tricky’ conditions

Overall, Di Gregorio describes “interesting and tricky” conditions, with some geographies easier – or harder – than others.

He adds higher inflation and interest rates have given the opportunity for the company to pause and ensure it is well run and efficient.

Nonetheless, Frontier Digital shares have fallen more than 40% over the last 12 months, with the company valued at $170 million.

Patrick Groves’ global Catcha Group accounts for 12% of the company’s register. With a 10% stake, Di Gregorio has enough skin in the game to feel the share price pain.

“Our share price has been whacked and that’s pretty harsh given the metrics the businesses are producing,” he says.