The REA Group Limited (ASX: REA) share price is under the spotlight after releasing its FY23 third quarter update.
REA Group owns, and has stakes in, many different property-focused websites such as realestate.com.au, realcommercial.com.au, REA India and US-focused Move Inc.
FY23 third quarter update
Here are some of the highlights from the result for the three months to 31 March 2023:
- Revenue dropped 3% to $269 million
- Operating expenses increased 9% to $133 million
- EBITDA (EBITDA explained) dropped 13% to $136 million
- Free cashflow declined by 9% to $83 million
Adding those numbers to the first six months, REA Group was able to tell investors about its performance for the nine months to 31 March 2023:
- Revenue was up 2% to $887 million
- Operatng expenses were up 13% to $392 million
- EBITDA was down 8% to $483 million
- Free cashflow was down 11% to $231 million
What happened in the quarter?
REA Group said this was difficult because of a “challenging macroeconomic environment in Australia”, though this was partly offset by continued strong revenue growth in India. That can be challenging for the REA share price.
The core Australian revenue was down 6% year on year, with national listings down 12%, Sydney listings down 20% and Melbourne listings down by 18%. However, the Australian residential ‘buy’ revenue benefited from a 6% average national price rise and the ‘rent’ revenue saw a 5% price rise.
But, realestate.co.au was able to boast of 125.1 million average monthly visits, 3.3x more visits than the nearest competitor each month.
REA India experienced revenue growth of 63% year on year, thanks to a 21% increase of the audience. It’s also benefiting from growth in adjacency products.
Outlook for the REA share price
REA Group noted that property prices have stabilised in recent months, thanks to limited supply, international migration and “strong underlying demand”.
Current listing volumes remain subdued, but more sellers are expected to return to the market. April residential new listings were down 24% year on year, Sydney listings were down 25% and Melbourne listings were down 22%.
The year on year comparison for the FY23 fourth quarter will reflect “strong prior period listing volumes”, so that could be a warning that the second half might be weak.
REA Group said that in FY24, its ‘buy’ yield growth is expected to grow at least 10%, largely driven by an average 12% price increase in its popular product, Premiere+. This would be good support for earnings next year.
Australian operating profit margins are expected to worsen “modestly”, while planned investment in India is expected to see EBITDA in that market worsen.
I think REA Group is a great business, but after the 27% rally since the start of the year, I don’t think it’s great value right now considering how much higher interest rates are. There are other ASX growth shares I’d say are better value.
