REA shares fall as costs take a bite out of bottom line

Mini house on a laptop.Mini house on a laptop.

The REA Group Ltd (ASX: REA) share price is in the red after the company revealed a notable jump in operating costs in the March quarter.

Right now, stock in the real estate advertising company is down 1.05%, trading at $137.26

REA share price slips as EBITDA drops 13%

Here are the key takeaways from the S&P/ASX 200 Index (ASX: XJO) communications company’s quarterly earnings:

Zooming out, REA revealed its revenue for the nine months ended 31 March jumped 2% year-on-year to $887 million.

Meanwhile, its EBITDA for the financial year so far has dropped 5% on that of the prior period to $495 million, dragged down by a 13% lift in operating costs.

What else happened last quarter?

A 12% drop in Australian property listings dinted the company’s performance last quarter following a strong listing environment in the prior period. The major capitals were hit hardest, with listings in Sydney falling 20% and those in Melbourne dropping 18%.

The company’s platform maintained its leadership position, with 11.9 million people visiting the site each month – representing 59% of Australia’s adult population.

Meanwhile, REA India saw revenue jump 63% year-on-year. However, higher costs in the segment, along with technology costs and higher marketing spend, drove growth in operating costs.

What did management say?

REA CEO Owen Wilson commented on the update driving the company’s share price today, saying:

While interest rate uncertainty continued to impact the Australian property market, conditions have improved with the stabilisation of house prices and more vendors returning to the market.

The strength of REA’s premium product offering and audience continued to support revenues, and our Indian business delivered exceptional growth.

Lack of supply and interest rate uncertainty have caused some vendors to sit on the sidelines, but we expect this to improve given strong demand, positive price sentiment and increasing confidence that we are near the peak of the rate cycle.

What’s next?

While REA appears confident an uptick is on the way, listings remain lower than the prior period. National residential new listings were down 24% year-on-year in April, with Sydney listings dropping 25% and Melbourne listings falling 22%.

The company expects its Residential Buy yield growth to increase 10% in financial year 2023. Meanwhile, costs are forecast to increase in the low single-digits and Australian operating jaws are expected to be modestly negative.

Looking to financial year 2024, its Buy yield growth is expected to post a double-digit jump, mainly driven by an average 12% price increase in Premiere+.

REA share price snapshot

Fortunately for investors, today’s slump hasn’t been enough to send the REA share price into the longer-term red.

The stock is currently 27% higher than it was at the start of 2023. It has also risen 29% since this time last year.

For comparison, the ASX 200 has gained 4.3% year to date and 4.4% over the last 12 months.

The post REA shares fall as costs take a bite out of bottom line appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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