Stock of the day: REA Group

(AI video summary)

This video was created on 9 May 2025 for IG audiences by ausbiz.

ASX code: REA

REA Group's revenue growth amid rate cuts

REA Group reported an 18% increase in revenue to $1.25 billion for the nine months to March, with quarterly revenue up 12% to $374 million. This growth aligns with the Reserve Bank of Australia's (RBA) interest rate cut, sparking buyer demand in the property sector.

Chief executive officer (CEO) Owen Wilson highlighted that these conditions have supported house price growth, benefiting the company's main portal. Core Australian business revenue grew 13% through price increases of around 15%, despite flat property listings.

Domain deal shifts competitive landscape

This positive performance comes as REA Group's competitor, Domain Holdings Australia, agreed to sell its remaining shares to United States (US) property giant CoStar Group at a 42% premium, valuing Domain at approximately $3 billion.

Nine Entertainment, owning 60% of Domain, expects to receive $1.4 billion after capital gains tax. Analysts believe REA Group's market lead remains secure despite this.

Investment considerations

REA Group trades at a price-to-earnings (P/E) ratio of about 60 - 65 times, higher than Domain's valuation of 40 - 45 times. Despite its high valuation, REA Group's operating margins of 55 - 60% reflect strong business quality.

News Corp, with a 62% stake, strengthens REA Group's market position, although this leaves other shareholders as minorities. The company’s pricing power and competitive moat support its standing in the Australian market.

Current shareholders might hold the stock despite its valuation, while new investors may opt for an underweight position, acknowledging both the business quality and its premium pricing.