REA share price tumbles on half year earnings miss

REA's profits are being impacted by the cooling housing market…

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Key points

  • REA has released its half year results
  • The realestate.com.au operator had a tough half due to the cooling housing market
  • Listing volumes were down in the first half and have continued to fall in January

The REA Group Limited (ASX: REA) share price is on course to end the week in the red.

In morning trade, the property listings company's shares are down 3% to $120.52.

This follows the release of the realestate.com.au operator's half year results this morning.

REA share price falls on half year results

  • Revenue up 5% to $617 million
  • EBITDA down 2% to $359 million
  • Net profit after tax down 9% to $205 million
  • Interim dividend flat at 75 cents per share

What happened during the half?

For the six months ended 31 December, REA reported a 5% increase in revenue to $617 million. This was driven by 3% growth in Australia, with yield growth across advertising products more than offsetting the challenging market environment. The company's India business also supported its top line growth, delivering a 48% increase in revenue year over year.

However, with the company's core operating costs increasing 7%, REA reported a 2% reduction in EBITDA to $359 million. The increased costs reflect higher employee costs from wage inflation and continued investment to deliver strategic initiatives, and increased marketing and travel costs.

And although its net profit fell 9% to $205 million, that didn't stop the REA board from maintaining its interim dividend at 75 cents per share.

How does this compare to expectations?

According to a note out of Goldman Sachs, its analysts were expecting REA to report a 3% decline in revenue to $606 million and a 6% decline in net profit to $208 million.

So, with REA reporting revenue of $617 million and net profit after tax of $205 million, it has beaten on the top line but missed on the bottom line.

The latter may explain the weakness in the REA share price today.

Management commentary

REA's CEO, Owen Wilson, appeared pleased with the company's performance given the tough operating conditions. He commented:

The Australian property market was heavily impacted during the first half by unprecedented consecutive interest rate hikes. While underlying demand remained healthy, uncertainty around future interest rate movements caused some sellers to pause and buyers to re-calibrate as borrowing capacities fell.

Despite these conditions, REA continued to deliver revenue and yield growth during the half. This performance underscores the strength of our products and audience, with customers increasingly relying on our premium products to maximise the impact of their campaigns.

Mr Wilson also revealed that its flagship site, realestate.com.au, maintained its leadership position during the half. He adds:

In a challenging market, the value of realestate.com.au's unparalleled audience, engaging consumer experiences, and rich data-driven insights becomes increasingly important. We are the number one property portal in each of our markets and remain keenly focussed on building the engagement and loyalty of consumers throughout their property journey.

The release reveals that 12.1 million people visited each month on average, or 55% of Australia's adult population. Furthermore, its average monthly visits of 117.6 million is 3.3 times more than its nearest competitor.

Outlook

REA has warned that rapid successive interest rate increases and softening consumer sentiment have significantly impacted property prices and volumes in the Australian residential property market.

This saw January national residential new listings falling 9% year over year.

And while REA expects its Australian operating costs to decline in the second half, it has warned that its target of positive operating jaws may not be achieved. Group operating costs are expected to increase in the high-single digits.

Mr Wilson concludes:

REA is focussed on delivering value to our customers at every point in the property cycle. We are continuing our investment in innovation and the growth of our product portfolio. "The uncertainty caused by rising interest rates is likely to continue in the coming months but we do expect that when interest rates stabilise we will see increased activity in the property market. The Australian economy is strong, unemployment is low and immigration is increasing. Each of these underpin our property market.

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. 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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