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How REA Group Limited just posted another impressive quarter

Shares in real estate advertising business REA Group Limited (ASX: REA) could enjoy a positive day today after the operator of revealed EBITDA or operating income of $130.9 million on revenue of $221.9 million for the quarter ending September 30 2018.

Free cash flow climbed 52% to $52.1 million, in a result likely to be welcomed by REA Group investors given the tough conditions and lower listings environment across Australian property markets over the quarter.

For REA Group much of the 17% revenue growth in a weak environment is due to its new product mix and strong sales operations.

For example when properties are taking far longer to sell compared to the boom years, sales staff have the opportunity to sell additional products to real estate agents to help their clients sell their homes. These include ‘depth listings’ (more prominent advertising), ‘audience maximiser’ and “Front Page”, while price increases from July 1 2018 also lifted revenues.

Additional revenue was also generated “by the inclusion of the Hometrack Australia business” and a full quarterly contribution from the Smartline mortgage broking business.

The quarterly revenue growth of 17% also compares favourably to Domain Holdings Australia Ltd (ASX: DHG) as operator of that posted total revenue down 1% for the  first 15 weeks of FY 2019. For REA, EBITDA climbed faster at 23% “due to phasing differences of some expenses”.

This result shows the apparent difference in quality between the News Corp (ASX: NWS) majority owned and Fairfax Media Limited (ASX: FXJ) majority owned that has seen its CEO leave since its recent listing, amid accusations from the Fairfax press itself that he was a ‘party boy’.

REA Group’s CEO, Tracey Fellows, and management however have an almost flawless track record of execution and innovation that has seen the shares climb from $12.80 in 2011 to $72.60 today.

However, it’s true that Australia’s housing markets are facing some tough conditions, despite REA Group’s product and sales innovation helping counter this. The stock currently trades on 34x trailing earnings, although it looks on track to deliver another year of robust growth.

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Motley Fool contributor Yulia Mosaleva 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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