REA Soars Up On Strong Quarterly Results Despite Tough Market Conditions

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REA Group Limited’s (ASX: REA) shares uplifted by 6.8 percent after the release of results for September quarter as on 8 November 2018. The revenue of the company increased by 17 per cent to $ 221.9 million and EBITDA of the company increased by 23 percent to $ 130.9 million compared to the corresponding previous period. The strong revenue growth was mainly due to the Australian Residential business and the inclusion of the Hometrack Australia business, which was not in the prior comparative period. The company is expecting that the rate of revenue growth will exceed the rate of cost growth for the full year and for each half. 

The operating expenses of the company increased by 10 percent to $88.8 million as compared to corresponding previous period. At the end of the September quarter, the company was having free cash flow of $52.1 million which is an increase of 52 percent on the September quarter of last year. In the September quarter the consumers of the company remained highly engaged across all platforms. The company’s app was downloaded more than 8.3 million times in the September quarter which is a great number. As per REA Group’s CEO Ms. Tracey Fellows, September quarter’s strong results demonstrate that despite difficult market conditions, the customers and consumers are clearly seeing value in the products and experiences that the company is creating.

The company delivered its results in unfavorable market conditions with a 3% decrease in listings nationally (including listing declines of 8% in Sydney and 1% in Melbourne).  The revenue of the company was affected by the price changes which took effect from 1 July and there was also a stronger contribution from newer products such as Audience Maximiser and Front Page. Despite the continued decline in the volume of new apartment construction projects, the Developer and Commercial businesses both witnessed double digit growth in their revenues which was driven by an increase in project profile duration and higher display advertising from developers, coupled with higher depth penetration in the Commercial business.

The revenue growth in the Financial Services business was impacted by the tighter lending conditions and banking royal commission on broker recruitment. Further, the company is expecting that these conditions will continue for the remainder of the financial year.  The Asia segment of the company experienced strong revenue growth in the September quarter and it is continuing to grow its audience share across the region. The market conditions are not expected to improve in the near future and it is expected that listings may get more weaker at the time of NSW election in March, while the impact of the Federal election is harder to predict.

In the last six months, the share price of the company decreased by 12.47 percent as on 7 November 2018, and traded at a PE level of 37.840x. REA’s shares traded at $77.56 with a market capitalization of circa $9.56 billion as on 8 November 2018 (AEST 3:00 PM).


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