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REA Group Limited just warned of a potential slowdown

This morning online property portal REA Group Limited (ASX: REA) posted its profit report for the full year ended June 30, 2017. Below is a summary of the results with comparisons to prior corresponding periods.

  • Statutory net profit of $206.3 million, down 12%
  • Adjusted net profit of $228.3 million, up 12%
  • EBITDA (operating income) of $380.9 million, up 16% on prior year
  • EBITDA margin of 57%
  • Total revenue of $671.2 million, up 16% on prior year
  • Full year earnings per share of $1.73
  • Final dividend of 51 cents per share, full year 91cps, up 12%
  • Took a non-cash impairment of $182.8 million on Asian business over H2 17
  • Closing cash balance of $358.5 million
  • Outlook for operating expense growth to exceed revenue growth in some quarters of FY 18

This is another solid result of double-digit growth from REA Group, despite a year of soft property listings across its core Australian market. The performance of the local realestate.com.au website again the highlight of the result with listing depth revenue up 18% to $481.8 million.

However, the group’s Asian business under the iProperty umbrella is struggling and it has already written off $181.5 million of its total investment around $750 million in buying the iProperty Group. I would not be surprised if there are more write downs to come given the eye-watering multiples of EBITDA and sales, REA Group’s management agreed to pay for the iProperty business.

Outlook

This remains a high-quality business, but the stock could come under selling pressure today as it trades on a big valuation and the underlying growth rates alone may not be sufficient to justify the valuation.

Moreover, the group’s outlook statement warned of a continued slowdown in new residential construction dwellings in Australia. It also appeared to suggest that expense growth may exceed revenue growth over some quarters in FY 18 in a statement that could send investors to the exits this morning.

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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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