REA share price sinks 9% to 52-week low following Q3 update

REA’s shares are falling on Friday…

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Key points

  • REA shares have crashed to a 52-week low on Friday
  • This follows a broad market selloff and the release of a softer than expected quarterly update
  • REA's sales and earnings were 7% and 6% short of Goldman Sachs' forecasts

The REA Group Limited (ASX: REA) share price is under pressure on Friday amid a market selloff and the release of a softer than expected quarterly update.

In morning trade, the property listings company’s shares are down 9% to a 52-week low of $110.68.

REA share price slides on softer than expected Q3 growth

  • Revenue up 23% year on year to $278 million
  • EBITDA up 27% to $155 million
  • Free cash flow up 39% to $91 million
  • National listings growth of 11%
  • 7 million unique visits per month

What happened during the third quarter?

For the three months ended 31 March, REA delivered a 23% increase in revenue. And thanks to its operating expenses growing slower than revenue at 17% to $122 million, the company’s EBITDA grew at the quicker rate of 27% to $155 million.

This means that REA’s revenue is now up 32% year to date to $869 million and its EBITDA is up 27% year to date to $523 million including acquisitions. Excluding acquisitions, the company’s revenue is up 23% and its operating EBITDA is up 25% in FY 2022.

A key driver of this growth was its Australian Residential business, which delivered strong quarterly revenue growth thanks to higher buy listings, price rises, increased depth and Premiere penetration, and continued growth in add-on products.

The release also highlights that the flagship realestate.com.au delivered a record average monthly audience for the quarter. The website grew to be Australia’s sixth largest online brand during the quarter, with 12.7 million people visiting each month on average. This represents 63% of Australia’s adult population.

What about the rest of its operations?

Rental revenue also continued to benefit from increased depth penetration and a price rise, though this was more than offset by a decline in rental listings.

REA’s Commercial and Developer revenue was broadly flat. This reflects weaker Developer revenues due to a continued decline in project commencements, which offset improved Commercial revenue from higher depth volumes and price rises.

Finally, the company’s Media, Data & Other revenues increased for the quarter, REA India delivered strong revenue growth, and its Financial Services business delivered strong growth in operating revenue. The latter was due to continued growth in settlements and brokers and the acquisition of Mortgage Choice.

How does this compare to expectations?

As you might have guessed from the REA share price performance today, this quarterly update was softer than the market was expecting.

A note out of Goldman Sachs states: “REA delivered a 3Q22 update that was below expectations, with Sales/EBITDA +23%/+27% vs. pcp and -7%/-6% vs. GSe.”

Management commentary

REA Group Chief Executive Officer, Owen Wilson, was pleased with the quarter. He commented:

“Australians transacted property at pace during the quarter as continued high demand gave sellers the confidence to bring their properties to market. These conditions, combined with record take up of our premium products, contributed to our very strong result. We also continued to see excellent growth in our strategically important Financial Services, Data and Indian businesses.”

Outlook

REA has had a difficult start to the fourth quarter due to the timing of Easter. It explained that national listings were down 8% in April due to a 19% decline in Sydney and an 18% decline in Melbourne.

And with the federal election happening in the coming weeks, REA expects listing volumes to be lower for the quarter.

Nevertheless, the fourth quarter volume headwinds are expected to be more than offset by higher Residential and Commercial yields, supported by contracted price rises and increased depth penetration, the benefit of strong March volumes deferred into Q4, and growth in Data and REA India revenues.

Mr Wilson concluded:

“The Australian property market is very healthy. While we are seeing housing price moderation in some areas, the strong economic fundamentals will continue to support robust conditions beyond this quarter. We are excited by the significant growth opportunities throughout our business and are well positioned to deliver another strong full year result.”

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 Scott Phillips.

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