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REA Group share price on watch after 13% decline in half year profit

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The REA Group Limited (ASX: REA) share price will be on watch this morning following the release of its half year update.

How did REA Group perform in the first half?

For the six months ended December 31, REA Group reported a 6% decline in revenue to $440.3 million.

This comprised a 6.5% decline in Australian Property revenue to $400.5 million, a 14.3% decline in Australian Financial Services revenue to $12.6 million, and a 4.6% lift in Asia revenue to $27.2 million.

The decline in Australian Property revenue was driven by a reduction in listing volumes during the half.

National residential listings fell 14% over the prior corresponding period. This was the result of a 17% decline in Sydney listings and a 16% reduction in Melbourne listings. Also weighing on its listings was a 30% decline in new project commencements.

On the bottom line, REA Group’s net profit from core operations came in at $152.9 million. This was a 13% decline on the prior corresponding period. Earnings per share also fell 13% to 116.1 cents per share.

Despite the decline in profits, the company’s board has held firm with its fully franked 55 cents per share interim dividend. This will be paid to eligible shareholders on March 24.

One metric that was heading in the right direction during the half was its costs. Strong cost management and efficiencies gained from an organisational realignment led to a 4% reduction in total operating expenses.

In addition to this, management notes that the realignment has increased the speed and efficiency of product delivery across the business, while allowing continued investment in innovation and growth initiatives.

The company’s CEO, Owen Wilson, was pleased with the resilience of the REA Group business.

He said: “Our results demonstrate the underlying strength of our business given the unprecedented market conditions. We now have a record number of customers committed to our premium listing products across both buy and rent. Customers see clear value in our product offerings, designed to deliver the highest quality leads to help their businesses grow.”

Outlook.

Despite the rebound in house prices over the last few months, management warned that listings remain challenging. It notes that Australian residential volumes were down 13% in January, with declines of 7% in Sydney and 5% in Melbourne.

However, REA Group’s CEO remains optimistic on the future.

“Key indicators show that the Australian property market is recovering. REA Group is well placed to benefit from this momentum. We anticipate that more favourable listings conditions in the second half of FY20 will deliver a stronger revenue outcome,” Mr Wilson concluded.

How does this compare to expectations?

This result appears to have fallen short of the market’s expectations.

According to a note out of Goldman Sachs, its analysts were expecting the property listings company to post a 3% decline in revenue to $454 million and an 8% reduction in net profit after tax to $162 million.

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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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