Just when you think REA Group Limited (ASX: REA), the operator of realestate.com.au, has grown as big and as fast it could, another twist in the story pops up.
Many people over the years have used the property search website, but still may not know a lot about the business behind it. Here's what every investor should know about the company and where it is headed.
Growth and financial strength
In the last 10 years the company has established itself as the leading website for property hunters. This in turn has led to sellers, agents and advertisers wanting to be involved with the site. Average monthly viewer visits to the website were 51 million in FY 2014 and it now has over 21,000 paying property agents using its websites.
In the last five years, this has resulted in a 25% – 35% annual earnings per share increase. This has made REA Group a stable fast grower and able to fund more expansion with wide free cash flows.
Acquisition of Move Inc.
The company has a number of overseas websites in Europe and Asia, but in September it partnered with its largest shareholder, News Corporation (NASDAQ: NWS) to acquire Move Inc., the third largest property search website in the USA. REA Group will hold a 20% stake.
In a $14 billion market for real estate agent and broker marketing, the top three sites – Zillow Inc (NASDAQ: Z), Trulia Inc (NYSE: TRLA) and Move – together control only about $1 billion. That means the US market is still highly fragmented. REA Group can use its expertise and technological know-how to take market share in the world's largest real estate market.
News Corporation to drive business
Also, News Corporation, a massive media company that owns The Wall Street Journal, Barron's, The New York Post and News America Marketing, can give Move's websites, move.com and realtor.com, great market exposure to drive business.
This could be the next major phase of business expansion for REA Group and propel it past its current $5.7 billion market capitalisation.
I have known of realestate.com.au for a long time and this development gets my investor mind going about the growth potential before the company. It may have a 34 price-earnings ratio, yet with high double-digit earnings growth, the price is relatively reasonable.
Consensus forecasts are for earnings growth to be around 28% annually for the next two years. I think it is one of the better fast growing stocks to own.
