REA Group Shares Rise Again on Q1 Result — Property Back in the Mix?

REA Group Shares Rise Again on Q1 Result — Property Back in the Mix?

It has unquestionably been a good week for REA Group Ltd [ASX:REA].

The digital property platform has closed each day higher than the last. The REA share price, climbing from $118.27 per share to $130.12 per share from Monday morning till now (Friday afternoon).

In fact, the stock is now closing in on its all-time high of $132.14. Highlighting just how overwhelmingly upbeat investors are about this unique property purveyor.

Granted, part of the reason for this upbeat mood was due to REA’s Q1 results. Putting into perspective a potential glimpse at Australia’s overall property market.

So, let’s dive right in.

Revenue down, but earnings up

The big news from REA is that net revenue for Q1 FY21 is down year-on-year. Falling to $195.7 million compared to $202.3 million this time last year.

Naturally, this reversal was largely blamed on COVID-19. Especially the tough response in Melbourne that has crippled the local property market.

But, it wasn’t enough to deliver a devastating result, as REA CEO Owen Wilson quickly pointed out:

While Melbourne’s stage four lockdowns impacted the real estate industry heavily and weighed on our result, it was pleasing to see other markets recover as more normal operating conditions returned’.

In other words, REA’s net revenue could have been a whole lot worse. And they planned for that — which is precisely why their operating expenses were way down year-on-year as well. Falling to $71.9 million from $87.4 million.

This cost cutting was the key factor in securing an 8% increase in earnings for the quarter. A result that is no doubt the cause of the upward share price momentum today.

Not to mention the fact that REA is seeing interest pick up in property searches once more…

Yes, according to their data, interest in Australian property is peaking again. As they made clear:

More Australians than ever are visiting our site and in September we reached almost 6 million more people than our nearest competitor. We also saw a 30% increase in enquiries during the quarter from high intent property seekers, delivering more buyer leads to our customers’.

So, if you thought the property market had more room to fall, you might want to think again.

What’s next for REA, and Aussie property?

For REA, Australia isn’t even the biggest concern right now.

They’re far busier trying to formulate their expansion into the Indian market. Providing an update to shareholders on their recent increase in ownership of Elara Technologies: A company that owns several digital real estate platforms in the Indian market.

In that regard, they may be on the cusp of trying to crack into far bigger markets.

However, for Aussie property investors, these results should be encouraging. Not only does it show that the worst may be over for the market, but it could rebound even stronger. That is, of course, if interest actually translates into demand.

Right now though, it is precisely the kind of bone that investors needed. Because the big crash that many people are waiting for, may have to wait a little longer.

As our own resident property guru — Catherine Cashmore — has been saying: the real crash won’t arrive until 2026. With some of the biggest investor gains likely to come in the years right up until this event.

Read all about it, and how to plan around this turning point, right here.


Ryan Clarkson-Ledward,
For The Daily Reckoning Australia