The REA Group Ltd (ASX: REA) share price is under the spotlight as investors get a good look at the FY23 result.
REA Group owns realestate.com.au and has stakes in various other property portals in Australia and internationally.
FY23 highlights
Here are some of the main highlights from the report for the 12 months to 30 June 2023:
- Revenue rose by 1% to $1.18 billion
- EBITDA (EBITDA explained) excluding ‘associates’ fell 3% to $651 million
- Net profit after tax (NPAT) down 9% to $372 million
- Profit / earnings per share (EPS) down 9% to $2.82
- Full year dividend down 4% to $1.58 per share
Other highlights
The property advertising business said that the revenue growth was underpinned by REA India, which saw revenue growth of 46% year on year. The India growth could be key to push the REA Group share price higher from here over time. Australian revenue was down 1%, despite yield growth across its advertising products, it was offset by a lack of listings this year compared to higher volumes in FY22.
In FY23, national listings were down 12%, with Sydney listings down 18% and Melbourne listings down 15%. This caused REA’s Australian residential revenue to drop 1% to $805 million. Commercial and developer revenue rose 4% to $142 million.
Australian costs only grew by 1% after “tight management of employee costs and lower marketing spend”. India saw higher costs from various growth-focused spending, leading to total operating costs rising by 7%.
In July, REA Group bought CampaignAgent for $39 million after initially buying a 27% stake in 2021, which it described as a market leader in vendor paid advertising and home preparation finance, “offering vendors choice and flexibility around the payment of their campaign.”
International progress
In India, the audience growth was 28% year over year, with Housing.com maintaining the number one market share throughout FY23 and it has grown its lead over the closest competitor.
REA Group owns 20% of Move Inc, which operates a leading property portal in North America called realtor.com. Move revenue declined 15% because of lower leads and transaction volumes. It contributed an equity accounted loss of $6 million, down from a $14 million contribution last year.
The ASX share also owns a 17.3% stake in PropertyGuru which operates sites in Singapore, Vietnam, Malaysia and Thailand. It contributed an equity accounted loss of $3 million, an improvement from the $6 million loss last year, with “strong marketplace revenue growth in all of its key markets.”
Outlook for the REA Group share price
July national residential new buy listings were down 5% year on year, with Sydney and Melbourne listings both increasing by 9%. There were strong listings in the FY23 first quarter, but weaker in the second quarter, which is what REA Group is comparing against in the first two quarters of FY24.
REA Group said that the Australian residential buy yield growth is expected to grow in the “double-digit” in FY24. Costs are expected to rise in the high single digits in Australia and India.
The REA Group share price has already risen 46% this year, so it has recovered most of the lost ground of 2022. It’s a strong business, with impressive market share and the ability to raise prices. However, I don’t think it’s a market-beating buy today due to the current growth outlook for the Australian business not being attractive enough considering the high earnings multiple and how large the company already is.
