Key statistics: ASX: REA
Closing share price: $77.915
52-week high: $81.100
52-week low: $54.650
Most recent dividend: 47c
Annual dividend yield: 1.26%
REA Group is the owner of Australia’s pre-eminent real estate search portal realestate.com.au.
REA’s website attracts 2.5 times as many visits as Domain, 2.6 times the number of mobile app launches, 7.2 times the amount of time on site and 6.2 times the number of page views according to the company’s half year report.
Importantly, since 2011 total listings in Australia have been declining. It seems, amid booming property, properties sell without being listed at all.
Despite that headwind however, REA has grown its profits by 22%pa. And for the half year ending December 31, 2017 REA’s revenue grew 21%, as did EBITDA and NPAT.
A significant contributor to this performance has been the growing penetration of depth advertisements – those “featured” or “highlighted” properties that rank at the top of searches within the portal.
Reassuringly, the “Premiere All” package sold to real estate agents, has proven to help agencies outsell their competitors who have not taken up this package because agents can sell depth ads to the vendor at a cheaper price.
While REA’s price is near its historic highs, the company still has the capacity to surprise.
Firstly, total listings are still declining nationally but in the most valuable market of Sydney, January listings were higher than the previous January.
Any further recovery in Sydney and any recovery in the Melbourne market would be a huge boost to a company that is already extracting double digit profit growth.
Secondly, the Australian property market has yet to reach the point where vendors are competing more aggressively to sell their properties by featuring them through depth ads.
With many postcodes still under-represented in the depth-ad stakes, a lengthening of “days on market” or a decline in clearance rates nationally would boost depth-ad penetration and revenue even further.
Finally, the proportion of a vendor’s marketing spend that is allocated to realestate.com.au is relatively small ensuring the company has a long-term runway for growth.
The combination of these positives could lead to even more rapid revenue and profit growth than the company has hitherto experienced.