The REA Group Limited (ASX: REA) share price is under the spotlight after revealing how it performed in the first three months of FY22.
REA Group is the owner of the realestate.com.au website, as well as many other investments in other digital real estate assets.
REA Group’s FY22 Q1
It said that its revenue was $264 million, which was up 35% year on year. Without acquisitions, like REA India/Elara and Mortgage Choice, revenue was up 22%.
However, operating expenses grew by 49% to $107 million. Excluding those acquisitions, expenses only grew by 13%.
EBITDA (excluding share of profit/losses of ‘associates’) (EBITDA explained) grew 27% to $157 million. Excluding acquisitions, EBITDA went up 28%.
Free cashflow for the quarter was $49 million, an increase of 20% year on year. Excluding acquisitions, free cashflow rose 29%. For some investors, this is the most important metric for how to judge the REA Group share price.
What drove this result?
REA Group said that the Australian residential property market showed resilience during the quarter. After a modest year on year decline in July, national listings increased 11% for the quarter, with Sydney down 7% and Melbourne up 79% due to lockdown impacts in the prior period.
The Australian residential revenue increased for the quarter, benefiting from increased depth and ‘premiere’ penetration, listings growth, the contracted price rise from 1 July, and continued growth in add-on products.
In financial services, the Smartline and Mortgage Choice businesses experienced strong growth in operating revenues, benefiting from continued growth in settlements and brokers.
India
REA India, formerly known as Elara Technologies, saw a rebound in the Indian market, It achieved strong year on year growth, driven by Housing.com’s core business and growth in adjacent products. The Housing.com audience grew by 65% for the quarter.
Associates
Its combined ‘associates’, which includes Move Inc, PropertyGuru, Simpology, saw combined EBITDA of $1 million, down from $3 million in the first quarter of FY21. Move Inc revenue growth was 30% year on year, though it continues to invest heavily in marketing and employee-related costs.
Outlook for REA Group and the share price
The company said that the residential property market conditions are positive. October national residential listings were up 16% year on year. However, year on year growth rates are expected to slow as it cycles very strong prior period listing volumes.
It also warned that regulatory measures could slow house price rises and impact listing volumes.
It’s expecting high single digit core operating cost growth, meaning it’s expecting the core business outside of REA India Mortgage Choice to see margins rise, but reflects the ongoing investment of the business.
The REA Group share price is priced for long-term success, but REA Group is one of the great ASX growth shares. The international growth is certainly an interesting bonus for the business.
