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What to expect when REA Group releases its full year results

One of the most highly anticipated results this earnings season will come from property listings company REA Group Limited (ASX: REA) on Friday.

With its shares up 32% in 2019 and trading within a whisker of an all-time high, REA Group will need to deliver on expectations if its shares are to continue their ascent.

What is the market expecting from REA Group?

According to a note out of Goldman Sachs, it expects the company to report revenue growth of 11% to $894 million for the full year. This is in line with the market consensus estimate.

In respect to earnings, the broker expects REA Group to report a slowdown in EBITDA growth to 2% in the fourth quarter. Whilst this might sound disappointing, it is largely expected by the market due to the negative impact of the Federal election on listing volumes.

In light of this, it expects full year EBITDA of $516 million, which will be an 11% year on year increase and a touch lower than the market consensus estimate of $522 million.

And finally, Goldman has forecast a 10% lift in net profit after tax to $307 million. This compares to the market consensus estimate of $313 million.

What else should you look out for?

Arguably the most important thing to look out for with REA Group’s will be an update on current trading conditions and its outlook for FY 2020.

This is because REA Group’s shares have been on a tear in recent weeks thanks largely to improvements in the housing market. This recovery is expected to result in a major lift in listings volumes and drive strong profit growth in the new financial year.

In addition to this, the broker wants to hear more about REA Group’s vendor leads opportunity as it believes this has the potential to be a key driver of growth over the next decade.

Goldman explained: “We will be focused on: (1) given the continued soft listings (-22% nationally in the four weeks to July 28th), any visibility on the listings environment leading into the spring selling season will be of interest; (2) while the company typically does not give formal guidance, we would expect FY20 outlook comments to include expectations of another year of ‘positive jaws’; and (3) any colour around the vendor leads opportunity and the early traction of the Agent Match product, which we expect to drive earnings growth in the medium-to-long term.”

Goldman has a buy rating on REA Group’s shares along with News Corp (ASX: NWS). It remains neutral on rival Domain Holdings Australia Ltd (ASX: DHG).

Whatever happens this week, I believe REA Group's long-term growth potential makes it an outstanding buy and hold option along with these highly rated blue chip shares.

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Motley Fool contributor James Mickleboro 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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