FY20 Q3: Is the REA Group (ASX:REA) share price a buy?

Is the REA Group (ASX: REA) share price a buy after reporting its FY20 third quarter?

REA Group is the owner of Australia’s most popular real estate portal realestate.com.au. It owns other property leading sites such as realcommercial.com.au too. It also has stakes in several other international property sites in the US, South East Asia and India.

What REA Group reported

For the three months ending 31 March 2020, revenue after broker commissions rose 1% to $199.8 million. Operating expenses reduced by 9% to $80.2 million. EBITDA (click here to learn what EBITDA means) rose by 8% to $119.6 million. However, free cashflow declined by 20% to $66.7 million.

Looking at the nine months to 31 March 2020, revenue after broker commissions was down 4% to $640.2 million and operating expenses were down 5% to $249.4 million. EBITDA was down 3% to $390.8 million and free cashflow was down 14% to $195.2 million.

What’s happening with COVID-19?

REA Group said the property market was showing good signs during the quarter until March. National listings were up 3% halfway through March, with listings up 15% and 24% in Melbourne and Sydney respectively, but finished down 2%.

Overall, national listings were down 7% for the quarter, but up 6% in Melbourne and up 5% in Sydney.

REA Group has given customers subscription discounts and greater listing flexibility to agents, but this will extend the time until revenue is recognised. The business launched ‘Digital Inspections’ and ‘Online Auctions’ to help adapt to the new property conditions.

Is the REA Group share price a buy?

The company said that there’s weakness in new listing volumes. April national listings were down 33% with Sydney listings down 18% and Melbourne seeing a 27% drop.

However, it’s working to lower costs. Fourth quarter operating expenses are expected to be 20% lower than FY19’s Q4.

At 30 April 2020 it had low debt with a cash balance of $135 million. It recently improved its liquidity with an additional $149 million loan facility. It also arranged a $20 million overdraft facility.

The REA Group share price is down (pre-open) 23% from before. That’s a solid discount. If listing numbers return within 12 months it could be a solid buy. But I’d wait until the full year result to see how things are panning out with property and the virus.

I’d rather buy the below technology shares for my portfolio with clearer growth paths:

Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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