REA Group Ltd (ASX: REA) is without a doubt the market leader in terms of real estate listings in Australia, but there's a hungry competitor looking to eat into their market share, and the threat is real.
Macquarie analysts have run the ruler over the company's quarterly earnings update last week, and while REA has been performing well in Australia, that's not to say they'll have things all their own way in the future.
Solid start to the year
REA Group last week reported revenue of $429 million for the first quarter of FY26, up 4%, while operating EBITDA was $254 million, up 5%.
REA said in its statement to the ASX:
The property market benefited from strong buyer demand and listing activity relative to historical averages, and continued house price growth. Overall revenue growth was moderated by lower listing volumes compared to the exceptionally high volumes recorded in the prior year.
But there were some negatives, including a 20% drop in the company's revenue in India, where the company expects to make a loss this financial year of $40 to $45 million, including a $12 million loss attributed to shuttering a business there called Housing Edge.
Back in Australia there is also the threat of increasing competition from Domain, which was bought by US real estate listings firm CoStar Group Inc (NASDAQ: CSGP), in May.
Macquarie said in its research note to clients that CoStar has been "quick to call out wins, which include improvements within the mobile app, and a marketing campaign which has supported a significant step-up in app downloads''.
They went on to say:
Overall, our view is that app downloads are a lower quality measure of competition, and a better focus area is on monthly active users, which measures customer engagement, and remains stable.
Macquarie said there were also potential threats coming from artificial intelligence, while there could also be upside on this front, with "opportunities for AI to enhance revenues/reduce costs''.
Macquarie said the outlook for the Australian market was consistent, with double-digit yield growth but flat listing volumes.
Macquarie has a neutral rating on REA shares, saying the competitive threat from CoStar now is real.
The Macquarie team has reduced its price target on REA Group shares from $255 to $220, saying this now includes a 15% discount from uncertainties related to AI and Domain.
They went on to say:
REA is running its own race reiterating that it will pursue double-digit buy yield growth in Australia and deliver positive operating jaws. There is however uncertainty with Domain and artificial intelligence, and we think it is too early to make a call on how this plays out – we are monitoring both.
REA shares closed at $209.20 on Friday.
