REA Group Ltd (ASX: REA) shares are starting the week in the red.
In afternoon trade, the ASX 200 stock is down 0.6% to $232.61.
This appears to have been driven by a broker note out of Bell Potter this morning.
What is the broker saying about this ASX 200 stock?
Bell Potter highlights that listings volumes have taken a hit recently due to a strong prior corresponding period and the timing of public holidays and the Federal election. It said:
PropTrack recorded a -9.7% YoY decline in National new listings for May after an – 10.6% decline in April, impacted by public holiday timing and a Federal election cycle activity against a backdrop of tough YoY comps. We estimate FYTD national new listings to be tracking at +1.0%, which is at the bottom end of REA's guided range for FY25e listings growth of 1-2%.
We remain positive on a strong June (BPe: +4% YoY, unchanged) for new listings with YoY interruptions now largely in the background and incremental macro tailwinds with potential for some vendor activity to be pushed into the final month, which drives FY25 BPe listings growth of 1.3% (prev. 2.0%).
In addition, Bell Potter has concerns over the ASX 200 stock's market dominance following the proposal of an investigation into price gouging by the ACCC. It said:
The ACCC is in the preliminary stages of an investigation of price gouging allegations against REA, serving an s.155 Notice to "provide information regarding certain subscription offerings" according to media articles. REA delivers curated audiences and leads and can then deliver value for agents by scaling off-platform (agent/agency) costs to on-platform (REA). The investigation on REA's pricing power contrasts against DHG's (Hold rated, TP: $4.20) struggle for market share, and reflects both REA's strength in product/audience and a now apparent risk of ~monopolising a market. We anticipate a ~6-9mth ACCC investigation if it passes the initial ~3mth phase
Downgraded to hold
According to the note, the broker has downgraded REA Group's shares to a hold rating with a trimmed price target of $262.00. This implies potential upside of almost 13% for investors.
It concludes:
Despite REA's ability to create value for agents and vendors, we see downside risk to consensus earnings estimates and val. multiples on uncertainty in pricing power near-term to support current expectations for 12.9% revenue growth in FY26 (BPe: 12.1%). REA is cycling difficult listings comps in FY26 which likely leaves the key growth driver (residential revenue) dependant on Buy yield per listing.
