REA Group Limited
(ASX: REA) shares could be worth considering after it revealed its first quarter of FY21.
How did REA Group do in the first quarter?
The real estate website ASX share said that its revenue (after broker commissions) declined by 3% to $195.7 million compared to last year.
However, operating expenses dropped by 18% to $71.9 million. This helped EBITDA (click here to learn what EBITDA means) rise by 8% to $123.8 million.
Despite the EBITDA increase, free cashflow declined by 2% to $41 million.
Why was this quarter difficult?
REA Group explained that COVID-19 restrictions in Melbourne caused significant short term listing weakness with volumes declining 44% in the quarter. Compare that to NSW – there was a 23% increase in listings for Sydney.
However, REA Group is seeing an increase in add-on listing products, which is helping revenue.
In terms of realestate.com.au’s market leadership, REA Group said that its average monthly visits rose 34% year on year and it had 3.2 times more visits compared to the nearest competitor.
What happened with expenses?
REA Group said it managed to reduce expenses by so much with a combination of ongoing cost management savings, efficiencies from the timing of the organisational realignment in the first quarter of FY20 and the deferral of marketing spending into the later quarters.
Current trading
In October national residential listings were down 1% with increases in Melbourne and Sydney of 14% and 2% respectively, offsetting declines in other markets.
REA Group as a result of COVID-19 impacts on the real estate market, it wouldn’t implement price rises in FY21.
At 30 September 2020, it had low debt and a cash balance of $187.5 million.
Time to buy REA Group shares?
I think it was impressive to see that REA Group’s EBITDA and free cashflow remain resilient despite the major COVID-19 impacts.
However, the decision to delay the price increase will obviously mean profit will be lower than what it could have been. But it could be the right long term decision. REA Group is reliant on real estate agents for a lot of business.
The low interest rate is obviously helping keep the REA Group share price high. For me, the Australian side of the business is attractive way to get a clip of the entire Australian real estate.
But it’s the international segments that could deliver strong long term growth such as the recent extra investment into India. But there are other ASX growth shares I’d want to buy first like Pushpay Holdings Ltd (ASX: PPH).
