Tomorrow, REA Group (ASX: REA) will release its FY25 financial result. Investors may be wondering whether to buy REA Group shares before that announcement.
REA Group is one of three online classifieds businesses on the ASX, along with Seek Ltd (ASX: SEK) and Car Group Ltd (ASX: CAR).
It operates Australia's leading real estate classified portal, realestate.com.au. If you've ever searched for a property to rent or buy, you've likely encountered its platform.
It's no secret that Australians love residential property. Last month, house prices continued to climb, despite the Reserve Bank of Australia (RBA) opting to leave rates on hold. Buyer demand remains strong, with the median home value now sitting 3.7% higher than a year ago at $844,000.
Accordingly, it should come as no surprise that the platform attracts 11 million unique monthly visitors. This is 73% higher than its nearest competitor.
Given that Australia's population sits at around 28 million, it's clear that REA Group's platform is extremely popular.
There's no denying that REA Group is one of the best businesses on the ASX. But is it a buy going into its result?
REA Group's valuation
In July, Macquarie Group Ltd (ASX: MQG) provided its view on REA Group shares as an investment.
While the broker acknowledged it is a high-quality business, it believes it is fully valued and placed a 'neutral' rating on the stock heading into the earnings result.
The price target was also cut from $265 to $260. Given that shares closed at $235.36 yesterday, this suggests 12% upside from here, including capital growth and dividends.
Macquarie said:
With the risk of increasing competition in the Australian online property market via CoStar / Domain, it is hard to justify that REA can see a multiple re-rate, whilst trading 47x 12-months forward P/E, to support a more constructive recommendation.
To justify a more constructive view on REA we would need a thesis that supports a re-rating, despite the risk of increasing Australian competition given that Domain Holdings (DHG-AU, restricted) has recently agreed to be acquired by CoStar (media release), subject to voting on 4 August 2025.
Earlier this year, US-based real estate data and analytics company CoStar Group acquired its closest competitor, Domain Holdings Australia (ASX: DHG), for $3 billion. Yesterday, it was revealed that Domain shareholders had overwhelmingly approved of the deal, with almost 100% voting in favour.
According to Macquarie, the potential for this deal to erode REA Group's competitive position in Australia is too high to justify REA Group's current valuation.
However, Macquarie also said rate cuts should support the broader housing market, and is forecasting 2% listing growth in FY26 before normalising to 1% listing growth in FY27.
Earnings season preview
On 6 August, REA Group will reveal its FY25 results.
Macquarie is expecting a 23% increase in net profit after tax (NPAT) to $567 million.
The broker forecasts this to be driven by a 17% increase in Australian residential revenue, with volumes up 1%.
Macquarie anticipates a payout ratio of 55%, which is in line with its four-year average of 54%.
Foolish Takeaway
Based on its current valuation, Macquarie believes REA Group is fully valued.
However, REA Group remains a high-quality business that would be an excellent addition to any investor's portfolio at the right price. Macquarie noted that REA Group provides the most attractive and consistent growth outlook in its Australian classified coverage.
However, based on current valuations, it prefers Seek. Macquarie currently has a price target of $27 on Seek shares, suggesting 15% upside from here over the next 12 months (including capital gains and dividends).
That doesn't mean things can't change in the future. The stock market is dynamic, with share prices changing every day. This can be magnified during earnings season, with multiple companies reporting each day. ASX investors should keep a close eye on REA Group's share price and consider buying it should the valuation become more compelling.
