REA (ASX:REA) share price higher after smashing first half expectations

REA was on form during the first half…

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Key points

  • REA has delivered EBITDA ahead of consensus estimates
  • 65% of the Australian adult population visited its site in October
  • The second half has started positively with strong listings growth in January

The REA Group Limited (ASX: REA) share price is on the move on Friday following the release of its half year results.

At the time of writing, the property listings company's shares are up 3% to $147.45

REA share price higher on strong half year growth

  • Revenue up 37% over the prior corresponding period to $590 million
  • EBITDA up 27% to $368 million and ahead of market consensus estimate of $350 million
  • Net profit and earnings per share up 31% to $226 million and 171 cents
  • Interim dividend increased 27% to 75 cents per share
  • 12.6 million unique realestate.com.au visits each month on average

What happened in the first half?

For the six months ended 31 December, REA delivered a 37% increase in revenue to $590 million and a 31% jump in net profit to $226 million. This was broadly in line with Goldman Sachs' above-consensus estimates of revenue of $591.6 million and profit of $227 million.

This strong growth was underpinned by growth across all its major lines, including a 31% increase in the Australian Residential business. Management advised that this reflects a strong market recovery despite the impact of Melbourne and Sydney lockdowns in the first quarter.

Supporting its growth were record-breaking visitor numbers to the realestate.com.au website. During the period an average of 12.6 million people visited each month, with a record 13.2 million in October. The latter is the equivalent of 65% of Australia's adult population. On average, there are 3.3x more visits than the nearest competitor each month.

REA reported a 17% increase in core operating costs, excluding acquisitions, during the half. This was driven by reduced operating costs in the prior period as it navigated through COVID uncertainty, continued investment to deliver strategic initiatives, and higher salaries in a tight labour market. Management also advised that strong growth in add-ons such as Audience Maximiser has driven an increase in variable costs related to these products.

Management commentary

REA's Chief Executive Officer, Owen Wilson, was deservedly pleased with the half.

He commented: "REA Group delivered an exceptional first half result as the business continued to successfully navigate the impacts of the global pandemic. As anticipated, the removal of COVID restrictions saw a wave of new listings on realestate.com.au, with sellers making up for the time lost in lockdown and taking advantage of the significant buyer demand. Combined with record take up of our premium listing products in Residential and Commercial, we delivered very pleasing revenue growth."

"Our flagship site realestate.com.au continued its position as the number one address in property. In October, a record of 145.5 million visits to realestate.com.au were achieved and the site has grown to be Australia's seventh largest online brand," he added.

Outlook

The second half has started strongly for REA. Management notes that national new listings were up 14% year on year thanks to 19% growth in Sydney and 5% growth in Melbourne.

However, no real guidance has been given for the full year. Though, management has revealed that it is targeting full year positive operating jaws, excluding acquisitions.

It also advised that it expects full year operating cost growth of low-double digits, up from high-single digits previously anticipated. This primarily reflects an increase in revenue-related variable costs.

"REA Group has emerged from another disruptive year in excellent shape, and we expect the favourable market conditions to continue into 2022. While COVID and the federal election may throw some curveballs, the effect on our market should be temporary. We are excited about new products scheduled to enter the market this year as well as the excellent progress we have made with our adjacent businesses," said Mr Wilson.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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