REA share price in focus
Founded in 1995, REA Group is a Melbourne-based real estate advertising company that is majority owned by News Corp. In Australia, it operates through its Realestate.com.au platform.
REA Group operates on a global scale and now operates property websites in around 10 countries used by some 20,000 agents. In a typical month, the core Australian website gets over 55 million visits. The business is broken down across geographic lines, with Australia taking the lion’s share of revenue. Within Australia, REA makes money by listing properties for sale or rent (i.e. the agent uses REA’s website to show properties, which the property owner is on the hook to pay). It also makes money from financial services (e.g. mortgage broking), but this is a much smaller part of the business.
Property websites such as Realestate.com.au attract both buyers and sellers and aim to simplify the process resulting in an efficient and stress-free transaction. We believe its competitive advantge is that of any other established platform: network effects and efficient scale. In other words, Domain (the #2 player) is meaningfully behind REA in users and views, which means REA can continue to charge more.
While it may be large, Rea Group Ltd is a growth stock, and so it requires a different set of rules and may not be straightforward hard to value, at times. Studies have shown that over 5-10+ years, it’s top-line revenue growth which explains a stock’s performance. That’s why it’s good to see Rea Group Ltd is able to growth revenue at 16.4%, a strong clip.
WOW shares
Founded in 1924, Woolworths is a retail operator in Australia and New Zealand with over 3,000 stores and over 100,000 employees. It is currently the Australia’s largest company in terms of revenue and market share.
Woolworths’ main operations include supermarkets (under the Woolworths brand in Australia and Countdown in New Zealand), retailing through its discount department stores under the Big W brand, and business-to-business (B2B) brands like PFD. Overwhelmingly, it’s 35%+ share of Australian supermarkets is its crown jewel.
Woolworths is a very popular choice for many ASX investors seeking dividend income. It consistently pays a fully franked dividend, usually at a yield of over 3%, and offers a very defensive earnings stream. It’s competitive advantage is probably best summarised as scale (distribution, low costs, etc.) and proximity (most shoppers still shop based on distance to the supermarket).
Share price valuation
As a growth company, the way to put a general prediction on the REA share price could be to compare its price-to-sales multiple over time. Currently, Rea Group Ltd shares have a price-sales ratio of 19.20x, which compares to its 5-year average of 12.29x, meaning its shares are trading higher than their historical average. Please keep in mind that context is important – and this is just one valuation technique. I wouldn’t make a decision based on one metric.
Since it is a more mature-style business, the WOW share price is offering a historical dividend yield of around 3.07%, which compares to its 5-year average of 2.66%. The Rask websites, especially our Rask Education platform, offer free tutorials explaining Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). Both of these models would be a better way to value the WOW share price.
