The REA Group Limited (ASX: REA) share price tumbled into the red after our largest online real estate advertising website announced its new chief executive.
It isn't an auspicious start for Owen Wilson who will take over the reins of REA Group from Tracy Fellows next month.
The REA share price tumbled 1.8% to $72.80 ahead of the market close, which is twice the loss of the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index today.
REA Group shares are among the worst performers in the Communications Services sector as the SEEK Limited (ASX: SEK) share price, Domain Holdings Australia Ltd (ASX: DHG) share price and Carsales.Com Ltd (ASX: CAR) share price fell by smaller amounts.
REA is knocking but no one is home
Investors aren't really listening to REA Group. While management has been insisting that the property slump is actually good for business, it hasn't stopped the REA Group share price from tumbling 20% over the past six months.
The stock is now trading close to the bottom of its 52-week range even as the group posted a 17% increase in revenue after broker commissions to $221.9 million in the September quarter while earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 23% to $130.9 million.
The downturn in the property market is prompting vendors and property agents to pay for premium ads and to advertise for longer on its website.
Management thinks this trend will continue but that hasn't stopped its share price from falling. I think there are a few issues that's keeping buyers of the stock at bay.
Risks to REA's share price
The first is the changing of the guards. Mr Wilson has been REA's chief financial officer since 2014 and he has big shoes to fill.
A change in CEOs after a stellar long-term share price run will certainty given investors pause for thought as history has shown that a management shuffle often triggers a turning point in the company.
The other issue is that REA Group, even after its share price fall, is no bargain stock. REA is still trading on a consensus FY19 price-earnings (P/E) multiple of nearly 30 times and high P/E stocks have taken the brunt of the recent sell-off.
There are also worries that property advertisers will cut back on ad spending if the property downturn becomes more protracted. This is already the longest property slump in memory and it has still more ways to go before an elusive recovery.
REA has an enviable market position and a long and successful track record, but I wouldn't be a buyer of the stock at this point.
