The REA Group Limited (ASX: REA) share price has gone up in response to the FY22 report.
REA Group is a large player in the digital advertising space for property. It owns realestate.com.au as well as a number of other online real estate assets.
FY22 result
REA Group revealed the following from its FY22 core operations:
- Revenue rose 26% to $1.17 billion
- EBITDA (EBITDA explained) grew by 19% to $674 million
- Net profit after tax (NPAT) rose by 25% to $408 million
- Earnings per share (EPS) went up 25% to $3.08
- Full year dividend of $1.64 per share, up 25%
The ASX share said that revenue growth was underpinned by “strong growth” in its Australian residential revenue, which was up 24%.
Excluding the impact of the consolidation of REA India and Mortgage Choice, core revenue rose 18%.
Core operating costs increased 34%, largely driven by the acquisitions of Mortgage Choice and REA India. Excluding those acquisitions, core operating expenses increased by 11%, reflecting investments to deliver its strategic initiatives, a tight labour market sending wages higher, an increase in revenue-related costs and an investment in brand and marketing.
REA India saw revenue growth of 92% to $54 million on a ‘pro forma’ basis. There was audience growth of 50% year on year.
It owns 20% of Move Inc, which operates realtor.com in the US. Move revenue rose 11% for the year. Move saw higher employee and marketing costs, as it invested for growth and expand into adjacencies. This led to a $2 million decline in Move’s equity-accounted contribution to $14 million.
Management comments
The REA Group CEO Owen Wilson said:
FY22 has been an exceptional year for REA. The record take up of our premium listings products enabled us to fully capitalise on the buoyant listings environment, and it demonstrates the value we provide to our customers and vendors.
Key milestones were also achieved in our property data, financial services and Indian businesses, building strong momentum. These markets present great opportunities and the revenue contribution of these businesses is growing rapidly.
Outlook
REA Group said that the Australian residential property is likely to “continue to moderate” as interest rates rise. This has already impacted property prices, according to REA.
July national listings were up 7% year on year, with Sydney listings up 18% and Melbourne up 6%. Year on year growth rates in the first quarter will reflect the lockdowns in Melbourne and Sydney last year. Growth rates beyond that will “reflect the strong prior period listing volumes”. In other words, a decline in listings seems quite possible.
REA Group revealed an average national 6% price rise. There has also been new product launches and continued growth in depth and premiere penetration.
It’s targeting “positive operating jaws” in FY23 in Australia. Operating cost growth is expected to be in the mid-to-high single digits in FY23. This includes the continued inflationary impact to salaries and investing to deliver its strategic growth objectives.
In REA India, it’s going to keep investing to capitalise on momentum and cement its number one audience position. As a result of the investing in India, total operating costs are expected to increase in the low-double digits.
Mr Wilson commented that REA’s growth momentum is backed by an “unrivalled audience and a product pipeline”.
Final thoughts on the REA Group share price
I think that REA Group is a quality ASX share with solid growth potential for the longer-term.
However, it’s true that REA shares are down around 25% since the start of 2022. It looks better value than at the start of the year, but the decline in the property market does complicate matters.
In my opinion, the business is worth owning for the long-term because of its investments in Asia and the US.
