The REA Group Limited (ASX: REA) share price will be one to watch on Friday when it releases its highly anticipated third quarter update.
Ahead of the release, I thought I would take a look to see what the market is expecting from the property listings company.
What should you look for in REA Group's update?
According to a note out of Goldman Sachs, it believes REA Group will deliver a solid third quarter update.
Especially after rival Domain Holdings Australia Ltd (ASX: DHG) recently provided an update which revealed 3% digital revenue growth in the third quarter and 15% growth in March.
Though, it does expect REA Group to have been impacted more by the softer listings environment outside of Sydney during the quarter.
Goldman Sachs has pencilled in sales growth of 3% over the prior corresponding period. However, things are expected to be better in respect to operating earnings, with the broker forecasting a 10% lift in third quarter EBITDA to $115 million.
What about the future?
REA Group's commentary regarding the fourth quarter will perhaps be even more important with this update.
Goldman Sachs is expecting a sharp decline in listings volumes during the current quarter due to the coronavirus pandemic. So, it is keen to see how the company plans to offset this, not least after auto listings company Carsales.Com Ltd (ASX: CAR) impressed with its cost performance.
It commented: "We will obviously be focused on REA expectations for 4Q20, including listings declines (GSe -62%), depth penetration and potential cost offsets (we model classified revenues lost at 80% margin, but note CAR had a stronger cost performance, aided by JobKeeper)"
Incidentally, Goldman Sachs has a buy rating and $99.00 price target on the company's shares. This implies potential upside of more than 12% over the next 12 months.
I would have to agree with this recommendation and would be a buyer of its shares with a long term view. Though, it would be prudent to wait for this update before hitting the buy button.
