Mr Pellegrino announced on October 12 that Domain’s revenue was down 1 per cent for the first 15 weeks of the financial year. The trading update resulted in a 13.4 per cent fall in its share price as investors bet Domain would not meet analyst consensus forecasts of 11 per cent revenue growth for fiscal 2019.
The real estate portal’s share price has failed to recover since then. Days away from its one-year anniversary on the ASX, the stock last traded at $2.51. This is 32 per cent down from its highest closing share price of $3.69 (when the company listed).
Domain’s rival, REA Group, which is controlled by News Corp, was up 4.5 per cent over the same period although has fallen 13.4 per cent since August.
Asked whether the trading update should have been communicated differently in light of the dramatic fall, Mr Pellegrino told Fairfax Media it was “something that’s on my mind” and he was thinking about how the business ensures “investors and broader stakeholders more clearly understand the dynamics of our business”.
“The one thing you don’t control is the market and we have a bit of a perfect storm at the moment,” he said, arguing the revenue impact was due to the cyclical property market and changes to bank lending affecting investors and home buyers.
“The [banking] royal commission has sowed a lot of doubt in consumers’ minds, we’ve got a relatively uncertain political environment particularly in the elections leading up to next year … We’ve got talk about policy settings at a federal election that have a significant impact on the decisions to invest,” he said.
The Labor Party has proposed restricting negative gearing to new properties only, which allows property investors to claim tax breaks on losses.
“We’re coming off the back of one of the most extraordinary periods of property growth that Australia, if not any market, has seen. You put all this together and you’ve got a perfect storm for a cyclical turnaround.”
Mr Pellegrino said the difference between Domain and REA’s performance was “explained entirely” by geography. Domain is heavily concentrated in Sydney and Melbourne, while REA has more exposure nationally.
“We need to drive greater geographic expansion and diversify our business. We have audiences across the nation and we need to convert that into growing and diversifying the revenue stream away from core markets of NSW and Victoria,” he said.
The Queensland property market has performed strongly, where REA has a significant presence. However, Mr Pellegrino said Domain was achieving “double-digit growth” in the state and he expected Nine’s television station in Brisbane would “continue that trend if not accelerate it” by promoting the brand.
Domain already has a commercial partnership with Nine television show The Block, but future benefits could be sharing audience data, and bringing Domain commentators onto Channel Nine news segments about real estate.
Mr Pellegrino said he expects his editorial staff and commentators to take positions on hot-button topics such as hoped-for changes to stamp duty, a state tax on property transactions, as he believes the content “already sets a significant proportion of the national agenda on property”.
Mr Pellegrino, a former Google Australia boss, has been forced to look closely at staff satisfaction since taking over the top job at Domain. His predecessor, Antony Catalano, resigned from the company in January, shortly before allegations about parts of the business operating as a “boy’s club” were reported, and chairman Nick Falloon undertook a cultural review in response.
The first employee engagement survey under the new leadership has been completed, with Mr Pellegrino describing a good score for “high levels of psychological safety”.
“I’d be inauthentic not to recognise there were some isolated incidents that were very public and to Nick’s [Falloon] credit, he acted incredibly quickly,” he said, “Under my guidance none of that will be acceptable. It’s not who I am and it’s not … what I will ever put up with.”
Jennifer Duke writes about media and telecommunications.