Why the REA Group Limited share price is rocketing today

Credit: The Team

Shares in online real estate business REA Group Limited (ASX: REA) are up more than 4% to $52.20 in morning trade after it revealed the $25 million purchase of is Australia’s biggest share accommodation website and reportedly receives an average of 2.6 million visits and 9 million flatmate searches monthly.

No details were provided as to the earnings power of, which is likely to be immaterial compared to the $185.9 million in EBITDA REA Group posted for the six months ending December 31 2015.

This looks like a strategic acquisition more than anything and REA Group will likely be able to leverage the website to drive traffic for its new business and help cement the network effect that both enjoy.

REA Group also recently acquired Asia-focused property website operator iProperty Group in a deal valued at around $750 million. iProperty owns leading websites in Malaysia, Hong Kong, Indonesia, Thailand and Singapore. All of which are fast-growing economies where property remains as potent an asset class as anywhere else in the world.

Over the long term international expansion remains an attractive growth opportunity for REA Group to leverage its reach, technology, know how, and financial firepower to build winning websites on high profit margins. It already has leading property websites in the US, Western Europe and South East Asia, although Australia remains the key growth driver.

REA Group is still majority owned by News Corp (ASX: NWS), the super powerful media giant that is using the REA Group vehicle to capitalise on the transition of advertising revenue online and away from old world media platforms.

As such REA Group remains one of the best long-term growth stocks on the ASX in my opinion, although shares don’t come cheap and conservative investors may find a better entry point later in the year.

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Motley Fool contributor Tom Richardson owns shares of REA Group Limited.

You can find Tom on Twitter @tommyr345

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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