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Why the REA Group Limited share price plunged today

The REA Group Limited (ASX: REA) share price is down 2% to $104.60 this morning, but it could be worse for investors after the classifieds business reported a weaker-than-expected September quarter. 

The soft local listings market saw REA Group deliver free cash flow down 20% to $41.8 million on adjusted revenue 9% lower to $202.3 million. EBITDA or operating income came in 14% lower at $114.1 million. 

Profit and revenue falls are unusual for REA Group given its dominant market position and exposure to a potent asset class in Australian property. 

The company’s announcement to the market today left no room for doubt that falling listings are the problem.

“The Group’s result was delivered in a challenging market with declines in new residential listing volumes and new project commencements. National listings declined 15% over the three month period, including listing declines of 22% in Sydney and 21% in Melbourne.”

The soft listings environment is curious given all the recent data and macro fundamentals point to a strong rebound in property prices.

REA Group’s own CEO pointing out that the “buyers are back and it’s only a matter of time before the sellers follow”.

The group declined to provide any specific full year guidance other than to suggest it expects a strong rebound in revenue over the second half of the fiscal year on the back of rising listings. 

Markets are forward looking and probably in sympathy with this view, but REA Group’s share price has room to fall if the listings environment doesn’t improve. 

Other digital giants to watch include SEEK Limited (ASX: SEK), Carsales.com Ltd (ASX: CAR) and Domain Australia (ASX: DHG).

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Motley Fool contributor Tom Richardson owns shares of Dicker Data Limited, REA Group Limited, and SEEK Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia has recommended carsales.com Limited, REA Group Limited, and SEEK 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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