At time of writing, the REA Group Ltd [ASX:REA] share price has taken a bit of a beating. It’s down 4.41% and trading at $108.38.
Take a look at the chart below.
You can see the REA share price has experienced a strong run up over the last 12 months. It’s gained almost 40%, cementing its status as an Aussie a tech blue chip.
Let’s get back to those results…
Previous to the announcement, Goldman Sachs had tipped a 3% decline in revenue. They were a touch off the mark.
REA Group’s half yearly report shows a 6% decline.
Does this mean the REA share price could face a further decline? We present the case for the current trend continuing after today’s selling pressure.
By the way, you can learn about the key driver of Aussie real estate prices in this free report. It’s not what you may think, and it has a simple and compelling ‘secret’ behind it.
Key points from REA half yearly report, results come in below expectations
Analyst expectations play a key role in explaining share price movements with big companies like REA.
For example, with the REA share price down today, the market is basically saying ‘boo! You didn’t do what we wanted’.
Here are the key points from the REA half yearly report for context:
- $440.3 million in revenue, down 6%
- NPAT $152.9, down 13%
- 55 cent interim dividend
- EPS of 116.1 cents down 13%
So a disappointing result for REA Group. The company calls ‘unprecedented listings conditions’ the driving factor behind this.
Listings were down 8% in FY2019 and are down 14% for HY2020.
It’s pretty simple: less people are putting their house on the market and this flows through to REAs revenue.
But there are some positives for the company as well.
Their app seems to be taking off, with a more than fourfold increase in hours spent on it, with a 28% rise in App launches and 12% gain in downloads.
Their Asia business is going well too, with the REA Group maintaining its position as the number one property site in Malaysia, Hong Kong and Indonesia.
They’ve got strong audience growth in these three countries.
Here’s why we think the REA share price could continue going up over the next 3–6 months after today’s drop off…
REA share price growth hinges on a better than expected Australian property market
There are a lot of factors that go into the Aussie property market.
As REA is the dominant player in Australian real estate market listings, it acts as proxy for what investors think the state of Aussie real estate is.
There is a lot of fear creeping into markets around the world at the moment.
Growth is sluggish, the coronavirus could get worse, and rising debt — everyone has a theory on why things go wrong in 2020.
This trickles down to the Aussie property market.
But there are signs 2020 could be a strong year.
The market has started to pick back up.
For example you can see the house price index in Australia has bounced 2.4% after declining for six quarters in a row:
With RBA rate cuts injecting a bit of enthusiasm and more potentially in the offing, you can see the long-term picture for REA Group is more promising than some may believe.
Governments will predictably alter policy to keep good vibes going.
And remember REA half year results are backwards looking.
Yes they have not delivered on their revenue guidance, but if you look at the real estate cycle closely, they could be due to defy expectations in H22020.
We will check back on REA Group should our thesis play out or it looks like we were wrong.
PS: In a brand-new report titled ‘Where to Invest in Australian Real Estate in 2020’, Callum Newman reveals the secret that very few real estate investors know about the REAL driver of property values. View it here.