Higher expenses eclipse Domain’s full year FY22 result: Shares down -5% after lunch

Despite Domain Holdings’ (ASX: DHG) posting a full year FY22 result filled with both brick bats and bouquets, it look the market no time to conclude that the net outcome was negative, with the share price tanking by as much as -9% at the open.

At face value, a 23.2% full-year FY22 revenue jump to $356.7m looked encouraging.

However further into result, investors discovered that net after-tax profit of $35.1m ­was only up 2.5%, while expenses at $234.6m, were up a whopping 24%.

Spiralling costs

Expenses included the acquisition of online marketing group Realbase, which were up 15.9% on the previous period.

Management explained that both JobKeeper payments, plus costs and benefits associated with its voluntary employee program Zipline, both had a material impact on the result.

For example, the $6.5m earnings (EBITDA) benefit from JobKeeper and Zipline in FY21, reversed to an $8m expense in FY22.

Slowing real estate market

Commenting on today’s result, CEO Jason Pellegrino notes management’s efforts to leverage property market strength, while providing downside protection during a more challenging cycle.

Despite a slowing real estate market, Pellegrino still expects sellers and real estate agents to turn to advertising and the company’s premium products to get houses sold.

Pellegrino also flagged margin expansion across every segment, with the ongoing core digital margin of 49% a stand-out.

Highlights within today’s result include:

• Earnings (EBITDA) of $122.1m were up 21.4%

• Earnings per share of 9.3 cents, up 43.4%

•  $151.5m of net debt, represents a leverage ratio of 1.2 times ongoing earnings (EBITDA)

• A dividend of $0.40 per share, payable 13 September, brought the total 12-month dividend to 6.0 cents, up 50% year-on-year

• Total digital revenue increased 24%

• Print revenue increased 22%

• Residential revenue increased 23% to $239.2m

Future costs

While management didn’t provide earnings guidance, its expects its FY23 costs, excluding acquisition impacts, to increase in the low double-digit range.

This includes higher baseline expenses in the mid-to-high single digit range.

The recent $60m Insight Data Solutions and $230m Realbase acquisitions are expected to add around $27m to ongoing operating expenses and an associated incremental revenue contribution.

Early signals

Despite the uncertainty about interest rates and the economy, Domain flagged further growth in “for sale” listings in the first six weeks of FY23.

Costs aside, management alluded to stable FY23 earnings (EBITDA) margins on an adjusted basis, while expanding on a reported basis.

Domain Holdings share price over 12 months.