It's no secret that some of the biggest companies in the world have made their fortune in the online advertising space. While titans such as Facebook Inc. (NASDAQ: FB) are listed over on the US, here in Australia, we have some homegrown success stories as well.
REA Group Limited (ASX: REA) is one such success story. Its flagship realestate.com site is the most popular real estate website in Australia by a long shot, with almost 75 million monthly users. REA's primary revenue source comes from property listings on its websites, for which the sellers or renters are charged a fee (the buyer/tenant pays nothing). The company also owns the Flatmates.com.au website, which is now dominating the shared accommodation space as well as realcommercial.com.au – a leading commercial real estate platform.
Why I'm bullish on REA's future
REA has been aggressively expanding into new markets. The acquisition of Smartline – a mortgage-broking franchise group, means REA now has a network of over 400 realestate.com.au-branded brokers. In my opinion, this will be very effective at leveraging growth from REA's existing platforms. It will also work well with the new home loans partnership that the company has also recently launched with National Australia Bank Ltd. (ASX: NAB). If this wasn't enough, REA also acquired Hometrack in June last year. Hometrack is a leading provider of property data services, which REA claims will be able to deliver an unprecedented level of property data and insights to the customers using its platforms.
The REA share price has substantially outperformed the ASX 200 for the last few years, and for good reason – phenomenal growth numbers with its property market advertising platform have resulted in REA's revenue more than doubling from $395 million in 2014 to over $807 million in 2018. This, in turn, has allowed the company to increase its dividend every year since 2009, which is currently yielding 1.53%. As REA continues to leverage its acquisitions to increase cash flow, this dividend will only go up over time – making REA a fantastic dividend-growth stock for the future.
Foolish Takeaway
Although US companies such as Facebook dominate the online advertising market in Australia, REA has found a niche where it can dominate. Unfortunately, as a high-growth stock, REA shares are very expensive with a P/E ratio of over 38 at the time of writing. REA will stay on my watchlist until a buying opportunity presents itself.
