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Fairfax Media Limited share price sinks: Here’s why

The Fairfax Media Limited (ASX: FXJ) share price has dropped more than 6% to 75 cents in early trading after releasing a trading update at its AGM today.

As you probably suspected, the news was great.

Since the end of June, overall group revenues are down around 6% to 7% compared to the previous year. Here are the sector details:

  • Metro Media down 8%
  • Australian Community Media down 10%
  • New Zealand Media down 4%
  • Macquarie Media Ltd (ASX: MRN) down 1%. Fairfax owns 54.5% of the company

But the big news is what’s happening in the company’s best division, Domain. Domain’s overall revenue is up 2% and its digital business up 11%, which might sound like good news. It is until you read the rest of the trading update.

New real estate listings volumes to the end of October are down 18% in Sydney and 5% in Melbourne. Domain’s first half earnings before interest, tax, depreciation and amortisation (EBITDA) is likely to be slightly below the previous corresponding period’s $65.7 million.

As we’ve noted over the past few months, auction listing volumes have been significantly below last year’s, resulting in very high auction clearance rates – particularly in Sydney and Melbourne.

Domain’s results so far also have implications for REA Group Ltd (ASX: REA), the market leader in real estate classifieds in Australia and Domain’s main competitor. That’s one reason why REA Group’s share price has dropped 3.2% to $47.75 today, but had fallen as low as $45.50 earlier. News Corp (ASX: NWS) – which owns around 62% of REA Group – has also seen its share price fall more than 2% today.

The Domain update also shows that real estate classifieds portals like realestate.com.au and Domain are susceptible to changes in the market, including some that can impact them negatively.

REA Group may well be about to disappoint investors as well.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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