The founder of Frontier Digital Ventures Ltd (ASX: FDV) Shaun Di Gregorio is no stranger to building online classifieds sites. He spent 8 years at REA Group Ltd (ASX: REA) as a key pillar in their Asian expansion strategy.
Just $1,000 invested in REA Group 10 years ago would have grown to more than $30,000 today when taking into account dividends paid along the journey. The key question now is: can Di Gregorio emulate that success with Frontier Digital?
Flagship Asset
Frontier Digital owns a stake in 15 online classified businesses in a range of emerging markets. By far their biggest position is in Zameen, which is basically the REA Group of Pakistan. Zameen is the dominant player in its market and is growing revenues at a rapid rate with revenue nearly doubling year on year. Zameen is expected to turn profitable next financial year with a long runway for growth ahead.
Skin In The Game
A key difference between REA Group and Frontier Digital is the approach to acquisitions.
Rather than buying the entire business Frontier Digital takes a minority stake in the leading local business, thus keeping the founding entrepreneurs in charge. Management uses their knowledge of the online marketplace in collaboration with the local founders to help drive growth. The effect is that local expertise is maintained and the interests of those in charge are more closely aligned with shareholders.
To offset the high-risk nature of investing in frontier markets, such as Pakistan, the company takes a portfolio approach with its 15 investments being spread across the globe. The network effects of online markets mean that it would likely only take one big winner to make an investment in Frontier Digital a roaring success.
The Verdict
Investing in frontier markets always comes with heightened risk but I think investors are being handsomely compensated for that risk at the current share price of $0.61.
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At the time of publishing, Luke has a financial interest in Frontier Digital Ventures Ltd.
