REA share price in focus
REA Group, best known for its realestate.com.au platform, is a Melbourne-based real estate advertising company majority-owned by News Corp.
Today, REA Group operates property websites in around 10 countries used by some 20,000 property agents. In a typical month, the core Australian website gets over 55 million visits. While the business has diversified globally, Australian operations still account for the bulk of revenue. Within Australia, REA makes money by listing properties for sale or rent and charging listing fees. They also have a financial services arm offering services like mortgage broking, but this is a much smaller part of the business.
REA’s competitive advantages, like any other established platform, are network effects and economies of scale. In other words, Domain (the #2 market player) is significantly smaller than REA in terms of users and views. This gives REA greater market power and pricing control. REA also benefits from owning assets across all parts of real estate, including listing, advertising, mortgage broking, and house sharing.
ZIP shares
Founded in 2013, Zip Co is a financial technology company specialising in buy-now-pay-later (BNPL) services, a popular choice among retail consumers.
Zip enables customers to make purchases instantly and pay them off over interest-free instalments, offering a flexible and convenient payment option.
Operating globally, Zip has partnered with over 79,300 retailers and serves more than 6 million customers. In September 2020, the company expanded its presence in the US market by acquiring the BNPL provider Quadpay.
REA & ZIP share price valuation
As a growth company, one way to put a broad estimate on the REA share price could be to compare its price-to-sales multiple over time. This can tell us how the company has historically been valued relative to its total revenue.
Currently, Rea Group Ltd shares have a price-sales ratio of 18.12x, compared to its 5-year average of 17.41x, meaning its shares are trading above their historical average. This could mean that the share price has increased, or that sales have declined, or both. In the case of REA, revenue has been growing over the last 3 years. Of course, context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric, but this can be a rough starting point.
The ZIP share price currently trades at a price-sales ratio of 2.69x, which compares to its 5-year long-term average of 5.81x. So, ZIP shares are trading lower than their historical average. Don’t forget, a simple multiple like this should only be the start of your research. The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! It’s a good idea to use multiple valuation methods to value a share like Zip Co Ltd.
