REA Group Limited (ASX: REA) has today released a mixed FY21 first quarter result. Since the close of trading last Friday, the REA share price has risen by 8.46%. Buoyed by the acquisition news that the company had entered into a binding agreement to increase its ownership interest in India-based Elara Technologies. Elara is India's fastest growing digital real estate business based on size.
On one hand, there has been an increase in REA Group's earnings before interest, tax, depreciation and amortisation (EBITDA) of 8%. On the other hand, the group also saw revenues drop by 3% after broker commissions. An 18% reduction in operating expenses, however, has enabled the company to remain prosperous in a very difficult time.
During the quarter, REA Group saw overall national residential listings declining 2% directly as a result of COVID-19 lockdowns. Moreover, the second wave in Melbourne, which saw physical property inspections banned, caused listing volumes to decline by 44% for the quarter. In contrast, New South Wales showed signs of a continued market recovery as restrictions eased with a 23% increase in listings for the quarter in Sydney.
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The good news for the REA share price
Although listing volumes are down, revenue from Australian residential listings increased for the quarter. This was due in part to deferred revenue driven by the initial market recovery in June, combined with an increase in add-on listing products.
Nevertheless, revenue from the commercial and developer sector saw a decrease due to COVID-19 restrictions in Melbourne. However, the eviction moratorium caused by the mandatory code of conduct for commercial tenancies also contributed. In addition, large developer project commencements remained subdued as a result of lower investor demand and immigration levels.
REA Group has maintained a careful watch on cost management. This has resulted in an 18% reduction in operating expenditure for the quarter. All cost categories were down due to a combination of ongoing cost management initiatives, including COVID-19 related savings, efficiencies from the timing of the organisational realignment in the first quarter of FY20, and the deferral of marketing spend into later quarters.
Management commentary
REA Group Chief Executive Officer, Owen Wilson, commented:
This result demonstrates the strength of our business, despite continued COVID-19 impacts. I am extremely proud of the resilience and dedication of our teams to continue to deliver new innovations and excellent customer support while working remotely.
While Melbourne's stage four lockdowns impacted the real estate industry heavily and weighed on our result, it was pleasing to see other markets recover as more normal operating conditions returned.
The way forward
REA Group has a strong balance sheet with low debt levels and a cash balance of $187.5 million as at 30 September 2020. It has access to undrawn facilities including $149 million in banking credit, and a $20 million overdraft facility. Nonetheless, the company has opted not to raise fees until July of 2021 as its customer base still has not fully recovered from COVID.
Mr Wilson concluded.
Our business, and Australia's property sector, continue to demonstrate incredible resilience and we are optimistic that more normal operating conditions will return next year.
