REA Group Limited (ASX: REA) released its half-year financials to the market last week, with the REA share price losing a bit of ground on the back a decline in profit and revenue.
Despite this, I still feel that REA is a great share to buy and hold for the long term. Here's why.
Market-leading position
REA Group maintains has a strong, entrenched and dominant position in the Australian online classifieds property market. The group's footprint now spans 3 continents with businesses in Australia, Asia and North America.
In Australia, its flagship site realestate.com.au continues to be the clear market leader over rival Domain Holdings Australia Ltd (ASX: DHG). The average monthly site visits to realestate.com.au across all platforms are nearly 3 times that of Domain.
Despite the downturn in the housing market for the two years up to mid-2019, REA Group's share price has continued to perform well. Since April 2019, the REA share price has risen by 53% to be sitting at $114.84 at the time of writing.
Challenging financials for H1 FY20
Last week, REA Group released its financial for the six months ended December 31.
The group reported a 6% decline in revenue to $440.3 million. This included a 6.5% decline in Australian Property revenue to $400.5 million, driven by a reduction in listing volumes during the half. There was, however, a 4.6% lift in Asia revenue to $27.2 million.
REA Group's net profit from core operations came in at $152.9 million, a 13% decline on the prior corresponding period.
Additionally, national residential listings fell 14% over the pcp. This was the result of a 17% decline in Sydney listings and a 16% reduction in Melbourne listings. Listings were also impacted by 30% decline in new project commencements.
REA noted that Australian residential volumes were down 13% in January, with declines of 7% in Sydney and 5% in Melbourne.
Foolish takeaway
Key market indicators, however, in my view now point to Australia being in the early stage of a residential property recovery. This follows on from late last year, where there has been increasing buying activity across most of Australia's major cities, especially Sydney and Melbourne.
Consumers are more likely to sell their houses in rising markets, so with house prices rising, this should translate to a higher number of online property classifieds listings, and thus place upward pressure on REA Group's revenues.
I feel that this is likely to provide some uplift to the REA share price, especially in the second half of 2020 and into 2021.
However, it should be pointed out that the property listings market may continue to be challenged over the next few months. So, if you decide to purchase shares now, be prepared for share price weakness over the short term.
