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REA (ASX:REA) share price falls despite strong start to FY24

The REA Group Limited (ASX: REA) share price is under the spotlight today after providing its FY23 first quarter update.

This is the business that owns realestate.com.au, realcommercial.com.au and other Australian property-focused businesses such as Mortgage Choice. It also has investments in other property sites in Asia and the US.

REA Group share price

FY24 first quarter update

The company said that the property market has started the new financial year strongly, led by Melbourne and Sydney. It said there was healthy demand from buyers, which combined with stable interest rates for several months.

Compared to the three months to September, the FY24 first quarter showed revenue growth of 12% to $341 million. Operating expenses only grew by 10%, leading to underlying EBITDA (EBITDA explained) growing by 13% to $198 million. Free cash flow also increased by 13%, to $64 million. Profit performance is key for the REA share price.

In the FY24 first quarter, national listings were up 1%, while Sydney listings were up 16% and Melbourne listings were up 14%.

The ‘buy’ revenue benefited from a 13% average national price rise, increased ‘Premiere+’ usage and a positive impact from more listings in the higher yielding markets of Sydney and Melbourne. Just over half of the 10.4 million people that visit realestate.com.au each month on average use REA’s portal exclusively. People also spend 3.1x longer on the realestate.com.au portal than the nearest competitor.

Commercial and developer revenue increased during the quarter after an 11% average price rise, increased depth penetration and listings.

The company said that financial services revenue declined. While the residential business has seen “increased new buy listings”, this has “yet to translate to settlements”, which were down 7% year on year.

India

The company said that India continued its momentum during the quarter with revenue up 25% year on year, largely driven by the Housing.com property advertising business, which saw audience growth of 16% year on year, and “customer growth and benefits from upselling customers to higher yielding premium products.”

Outlook for the REA share price

REA said that Sydney and Melbourne have experienced a stronger than typical winter and this has continued into spring. This is being supported by “near record employment and immigration”.

The RBA rate increase and any further increase in rates could have a “negative impact” on sentiment.

October national residential new buy listings were up 16% year on year, with Sydney listings up 33% and Melbourne listings up 32%. The year-on-year growth rate in the second quarter will reflect “particularly weak prior period listing volumes.” In other words, the first half of FY24 could show strong growth of listings, and therefore revenue.

Listing number growth in FY24 is anticipated to be in the low-to-mid single digits, while the price rise is expected to help residential buy yield growth in the double digits.

With the REA Group share price up 45% this year, I’d hesitate to buy at this level considering interest rates are so high which is meant to hurt the valuation of ASX growth shares. But, conditions are going strongly – ad price rises and stronger listing numbers is a double winner for the company.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.
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