The REA Group Limited (ASX: REA) share price is under the spotlight after announcing its FY23 half-year result.
REA Group is the owner of a number of real estate portals including realestate.com.au and realcommercial.com.au. It also has investments in overseas real estate portals.
REA Group HY23 result
Here are some of the highlights from the first six months of FY23 of its core operations:
- Revenue rose 5% to $617 million
- EBITDA (EBITDA explained) excluding associates fell 2% to $359 million
- Net profit after tax (NPAT) fell 9% to $205 million
- Profit / earnings per share (EPS) dropped 9% to $1.55
- Interim dividend of $0.75, the same as last year
REA Group noted that revenue growth was supported by a 3% increase in revenue in Australia. Revenue from its advertising products more than offset the “challenging market environment”. REA India performed “strongly”, with revenue rising 48% on 36% growth of its audience – Housing.com has maintained its number one market share and grew its lead over the closest competitor.
However, Australian core operating costs increased by 7%, which was caused by wage increases as well as ongoing investment in strategic initiatives, plus marketing and travel costs (whereas last year there was limited travel due to COVID).
REA pointed out that the Australian property market is being heavily impacted by rapid interest rate increases. This has caused some sellers to “pause”.
But, despite this tough situation, the performance “underscores the strength” of its products and audience. More customers are using the premium products.
Realestate.com.au experienced 117.6 million average monthly visitors, 3.3 times more than the nearest competitor each month on average.
Other international investments
REA owns 20% of Move Inc, which owns realtor.com, a leading property portal in North America. Move revenue fell 10% as it was impacted by the economic environment in the US.
REA also owns 17.5% of PropertyGuru, a listed business which operates leading marketplaces in Singapore, Vietnam, Malaysia and Thailand. In HY23, REA Group’s equity accounted loss was $2 million, down from $4 million, with “strong” revenue growth in all key markets.
Outlook for the REA Group share price
Property volumes are hurting and REA Group is expecting more price declines. Once interest rates stabilise, the company thinks that will encourage increased activity. But, there are still positives such as low unemployment, expected wage growth and ongoing increases in migration.
January national residential new listings were down 9% year over year, with Sydney listings down 16% and Melbourne listings down 15%. It’s expecting further weak year over year numbers for the rest of the financial year because of strong prior period listing volumes.
However, Australian operating costs are expected to decrease, though it will continue to invest in India. It’s expecting associate losses to increase in FY23, reflecting tougher market conditions.
It’s a good time to consider REA Group shares considering property market conditions have worsened and interest rates are up. I’m not sure the REA Group share price is cheap enough to be a great investment today, but I do think it’s a quality ASX share with its leading market position.
