REA Group Limited (ASX:REA) reports revenue growth of 19%

Property website business REA Group Limited (ASX: REA) has reported its third quarter trading update for the three months to 31 March 2018 today.

REA Group said that for the March quarter revenue after broker commissions grew by 19% to $186 million whilst operating expenses only grew by 18%. It also reported that earnings before interest, tax, depreciation and amortisation (EBITDA) before non-recurring transactions increased by 19% to $102 million. Free cash flow increased by 8% to $65 million.

The numbers look very similar for the nine months to March 2018. Revenue is up by 20%, EBITDA is up by 21% and free cash flow is up by 9%.

REA Group said these results were driven by the strength of the company’s residential and commercial businesses and the inclusion of the financial services business, which wasn’t included in the prior comparative period.

It managed to achieve these results even with lower listing volumes due to the Easter timing and that project launches continued to be lower than last year.

REA Group said that the financial services segment, which was launched in the first half of the financial year, is on track to achieve revenue of between $26 million to $30 million and EBITDA of between $7 million to $11 million.

The company said that the Asia segment continues to grow and it has extended its market position in both Malaysia and Indonesia.

Management were also happy to boast about the success of its ‘Lifestyle’ experience, with it now being the number one publisher of original property-related video and digital content, housing more than 11.5 million minutes of video and over 1,600 articles.

The company also reminded the market about its upcoming $130 million acquisition of property data services business Hometrack.

REA Group CEO Tracey Fellows said “We continue to extend our audience lead, with app launches reaching a record high of three times more than the nearest competitor. The combination of consumer innovation and creating the best and most personalised property experiences is what makes us the number one place for property.”

Foolish takeaway

This is another solid quarter from REA Group. It’s trading on a very high valuation of 40x FY18’s estimated earnings, but the compounding profit growth over the next few years could justify a buy today. However, I wouldn’t want to buy at the current price because I think the share price could fall over the next couple of years back into the $70s or even the $60s if the property market were to fall.

Instead of REA Group, I’d much rather buy shares of these attractively priced hot stocks.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. 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 Scott Phillips.

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