The S&P/ASX 200 Index (ASX: XJO) share REA Group Limited (ASX: REA) has suffered from higher interest rates and weakening sentiment in the property market.
Since its share price peak in November 2021, the online real estate advertising business has fallen around 30%.
To lose around a third of its value is a significant decline for any business although REA Group is still worth $16 billion, according to the ASX.
The company just delivered its FY23 half-year result for the six months to December 2022.
Let's remind ourselves what REA Group just reported.
Earnings recap
The owner of realestate.com.au reported that its core operations generated revenue growth of 5% to $617 million. However, earnings before interest, tax, depreciation and amortisation (EBITDA) (excluding associates) dropped 2% to $359 million.
Net profit after tax (NPAT) declined 9% to $205 million, though the business reported its half-year dividend was maintained at 75 cents per share.
REA Group was proud to report its Australian revenue grew by 3%, with yield growth across its advertising products more than offsetting a challenging market environment and strong prior-year comparables, particularly in the second quarter. In the first half of FY23, national listings in Australia were down 9%.
The ASX 200 tech share also reported that REA India achieved year-over-year growth of 48%.
Outlook
I think one of the biggest influences on the REA Group share price is what's going to happen next. Certainly, the company's outook was revealing.
REA Group noted that rapid successive interest rate increases and softening consumer sentiment have significantly impacted property prices and volumes in the Australian residential property market.
The ASX 200 tech share also said that while the effects of higher interest rates "will take some time to become apparent and price declines are expected to continue, the company expects stabilisation of the interest rate cycle will improve confidence and encourage increased activity".
However, trying to see the silver lining, the company said that "underlying demand continues to be supported by ongoing strong fundamentals including low unemployment, anticipated wage growth, and ongoing increases in migration".
REA Group said that January national residential new listings were down 9% year over year, Sydney listings were down 16%, and Melbourne listings were down 15%. The year-over-year growth rate for the rest of the financial year will "reflect strong prior period listings volumes, particularly in Q4".
This means listing volume growth numbers could continue to be quite negative over the rest of the financial year.
My take on the REA Group share price
REA Group shares are only down by 11% over the past year, though the company's share price has dropped 31% since early November.
Despite falling more than 2% on Friday, the REA Group share price is still valued at 34 times FY24's estimated earnings. I think that's a fairly high valuation considering interest rates are now much higher than they used to be.
However, I do think that REA Group has some impressive qualities. It's in the strongest position in the Australian market because it gets more than three times the daily visitors of its nearest rival. This enables it to pass through price increases with little detrimental impact.
The ASX 200 share has also very compelling investments in businesses that are leaders in the US, India, and Southeast Asia. Each of these regions could turn into important profit generators for the business.
If I already owned REA Group shares, I'd hold them for the long term. However, if I wanted to buy shares, I'd want a better price in 2023 before pushing the buy button.
