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REA Group share price on watch after third quarter update

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

How did REA Group perform in the third quarter?

For the three months ended March 31, the property listings company delivered a 1% increase in revenue over the prior corresponding period to $199.8 million.

And thanks to a 9% reduction in operating expenses to $80.2 million, REA Group delivered an 8% lift in quarterly EBITDA to $119.6 million.

One disappointment was its free cash flow. It fell 20% to $66.7 million in the third quarter despite the profit increase. 

What were the drivers of this result?

The key driver of this result was a meaningful improvement in the Australian property market for much of the quarter.

In the first half of March national property listings were up 3% thanks to 15% increases in Melbourne and 24% increases in Sydney. However, due to a sharp drop following the coronavirus outbreak, listings ended the month down 2%.

For the quarter, national residential listings declined 7%, while Melbourne and Sydney were up 6% and 5% respectively.

REA Group Chief Executive Officer, Owen Wilson commented: “Prior to the impact of COVID-19, the market recovery was in full flight with very strong listings in the weeks leading up to mid-March. In February we saw record audience numbers and strong buyer interest, reinforcing signs of the positive market momentum.”

Outlook.

REA Group notes that the real estate market continues to be negatively impacted by social distancing measures, business closures, and economic uncertainty.

This led to national listings falling 33% during April, with Sydney down 18% and Melbourne down 27%.

In order to combat this decline, the company is working hard on cost-savings. Workforce planning measures, reduced marketing expenditure, and supplier arrangement reviews are expected to lead to a 20% reduction in fourth quarter operating expenses.

Pleasingly, REA Group is well-positioned to navigate these tough trading conditions. It has a strong balance sheet with low debt levels and $135 million in cash. It has also boosted liquidity with an additional $149 million loan facility.

“I‘ve been extremely proud of the way our team has successfully adapted to our virtual working arrangements, and at the same time delivered innovative and rapid solutions to support our customers and consumers,” concluded Mr Wilson.

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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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