With property prices still heading north – particularly in the major capitals – we recently took the opportunity to meet with the CEO and CFO of REA Group (ASX: REA), Tracey Fellows and Owen Wilson. Our discussion gave us a greater insight into REA’s 1H17 result and the prospects of Australia’s leading online real estate advertising company.
In brief, here are the key points on the firm’s result, and a look into the immediate future.
• Good result. Revenue and EBITDA slightly below expectations due to a weak IPP, slightly lower depth listing revenues and a weak European result.
• Australia residential depth (listing and subscriber revenues) grew 12% over 1H17; note that Asia in 1H16 was boosted due to the removal of myfun.com from the Australia segment into the Asia segment.
• Despite residential listings being down, paid listings on REA increased by 3% and premiere penetration also increased, as shown in the chart below.
• Move Inc appears to be improving, having moved from a -$4.6m loss in 1H16 to a -$1.8m loss in 1H17 (although note that the loss is only due to amortisation of intangibles; cash earnings are not disclosed). This is a positive but still a long way off in terms of this becoming a significant source of earnings. Note Zillow grew circa 30% over the half.
• REA’s European operations (Casa.it and Athome) were sold during the half. The profit from this sale is recognised in ‘discontinued operations’ ($163.4m). Post the transaction, REA has invested in a 14.7% stake in an Indian listing portal PropTiger(for $67.9m); notably, Newscorp has a 23% stake.
On the horizon
• Management will be releasing ‘Premiere Black’ within 5 months. Premiere Black is a listing product tiered above that of the standard Premiere. It will have a much higher price point and largely be targeted at high priced property in Sydney and Melbourne.
• Management has also released ‘audience maximiser’ which is a product that draws in more audience for a particular listing from other sources (such as news sites). There’s a 2-minute summary of the product.
• Audience maximiser effectively stacks onto a highlight/premiere ad and is best thought of as a price increase on a regular ad. Hard to say how effective this will be (we have no data and it’s unclear whether the additional volume will comprise worthwhile leads).
• Price increases on residential depth listings are again planned for July 2018.