The REA Group Limited (ASX: REA) share price will be on watch after the release of the company's highly anticipated third-quarter update. At the market's close on Thursday, the REA share price was trading at $153.84, down 1.23% for the day.
So, will the company's results live up to investor expectations against the backdrop of a roaring property market? Let's take a look.
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Why the REA share price is in focus
The REA share price surged 12% in May into near-record territory, perhaps in anticipation of a strong quarterly result.
It's been a tough quarterly reporting season with many of the so-called 'COVID-19 winners' facing tough comparables against supercharged FY20 earnings.
From ASX e-commerce shares such as Kogan.com Ltd (ASX: KGN) to healthcare shares such as ResMed Inc (ASX: RMD), seemingly positive results have resulted in sharp, unforgiving selloffs by investors.
Third-quarter highlights
REA Group delivered solid third-quarter results, with revenue increasing by 8% (excluding acquisitions) to $225.6 million. Meanwhile, earnings before interest, taxes, depreciation, and amortisation (EBITDA) increased by 13% to $123.3 million.
From a year-to-date perspective, revenues edged 1% higher on the prior corresponding period to $655 million, while EBITDA was 10% higher to $415.1 million.
REA reported that the Australian residential property market showed strong signs of recovery during the quarter, particularly in the months of February and March. The update highlighted a 2% national decline in residential listings in 1Q21, before a respective 10% and 8% increase in the second and third quarters.
Roaring property prices and heightened buyer interest has seen a surge in average monthly website visits. Realestate.com.au recorded 130.7 million average monthly visits, up 47% year on year, with a record 137.3 million visits in March. The platform was also seeing growth in the uptake of the app, with total app downloads of 10.8 million, up 10% year on year.
Elsewhere, the company's commercial and developer revenue increased due to the continued growth in new project commencements, up 14% for the quarter.
Financial services revenues declined due to a reduction in partnership revenue, with its current National Australia Bank Ltd (ASX: NAB) agreement performance payments reaching maturity in September 2020.
The company's Asia business saw a decrease in revenue for the quarter, as Malaysia was heavily impacted by mobility restrictions as a result of the pandemic.
In December, REA took a punt on the emerging Indian real estate sector with a substantial stake in Elara. In line with expectations, the acquisition delivered $9.5 million in revenue and an EBITDA loss of $7.3 million. The company anticipates Elara delivering 2H21 revenues of $12 to $17 million and an EBITDA loss of $15 to $20 million. However, the worsening COVID situation in India could see weaker than anticipated results.
Management commentary
REA Group chief executive officer Owen Wilson commented:
Australia's property market is in full flight, with this positive momentum contributing to strong listings growth for the quarter. Once again, realestate.com.au set new audience records and delivered over 3 million buyer enquiries per month, an increase of 82% for the quarter.
Current trading
The strength of the residential property market carried over into April, supported by record-low interest rates and improving consumer confidence. REA's current trading highlights a 98% year-on-year increase in national residential listings, driven by a respective 127% and 116% increase in Melbourne and Sydney.
Despite the strong year-on-year increase, the company flagged that:
While the market dynamics are strong, these growth rates are exaggerated by the severe COVID related declines experienced in April 2020. Listings in that month were down 33% compared to April 2019.
REA share price snapshot
It will be interesting to see how the REA share price performs today and whether the company's relatively strong current trading results are tempered by its weaker figures from last year.
REA shares are currently up by just 3.35% in 2021 however they have gained more than 74% over the past year. Based on the current REA share price, the company has a market capitalisation of around $20 billion.
