The S&P/ASX 200 Index (ASX: XJO) share REA Group Ltd (ASX: REA) has been one of the best long-term performers on the ASX.
The ASX property share recently reported its FY24 result, which included a number of positives. Revenue rose 23% to $1.45 billion, earnings per share (EPS) grew 24% to $3.49, and the full-year dividend was hiked by 20%.
REA Group may be best known for owning realestate.com.au, but it also owns several other Australian businesses in the property industry, including realcommercial.com.au, CampaignAgent, the data and insights business PropTrack, and the mortgage broking business Mortgage Choice.
I've been a fan of this company for a long time. Let's discuss why I think it can continue to perform well.
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Strong market share
Investors often discuss the importance of economic moats, where a business has a competitive advantage that enables it to make good profits. REA Group has an exceptionally strong economic moat.
REA Group's market-leading realestate.com.au business receives an impressive four times more monthly visits, on average, than its nearest rival. It says that 10.8 million people visit each month on average, with 5.7 million people exclusively using realestate.com.au.
This strong market position allows the ASX 200 share to implement price increases with little to no detrimental effect despite there being competitors offering a similar service for a cheaper price.
For example, in FY24, residential revenue benefited from a 13% average national price rise. The commercial segment experienced an 11% price rise, and the rental segment experienced an 8% average price rise.
Revenue growth is a strong driver of profit growth.
Operating leverage
One of the most important elements for a business to outperform the market, in my opinion, is its ability to grow profit margins.
Investors usually value a company based on its profit potential. If profit can grow faster than revenue, this could lead to pleasing shareholder returns.
As I pointed out earlier, the ASX 200 share's revenue grew 23%, and the EPS rose by 24% in FY24.
In FY25, the company is targeting further profit margin improvement.
If its revenue keeps rising faster than expenses over the rest of the decade, I think it could become a much larger company, particularly if it's successful overseas.
India and other international markets
REA Group has investments in Move Inc (a 20% stake) and PropertyGuru (a 17.2% stake) which gives it exposure to digital property advertising in North America, Singapore, Vietnam, Malaysia and Thailand. Those are compelling markets for REA Group to have exposure to.
But, the most exciting international segment, in my opinion, is India.
A population of more than 1 billion people that is rapidly adopting digital products and services is a huge potential market for REA India, which has the number one position in the country.
In FY24, REA India saw revenue growth of 31% to $103 million and app traffic growth of 39%.
If the ASX 200 share can start generating meaningful profit margins in the country, the company's overall earnings outlook could significantly improve. According to the current forecast on Commsec, the REA Group share price is valued at 40x FY26's estimated earnings.
