Lockdowns and restrictions remained a feature of the first quarter of the year for REA Group, but property listings are fully inoculated against the effects as volumes continue to grow. Encouragingly, yield growth has begun to contribute more to revenue growth.
The volatility of property listing volumes was on show during 1Q22 with national residential listings up 11%, bookended by a -7% outcome in Sydney and a 79% bounce back in Melbourne.
REA noted an increase in depth and Premier penetration, growth in listings, a price rise from 1 July 2021 and further growth from add-on products as contributors to top line revenue growth of 35% to $264 million in 1Q22 compared to last year.
Underlying revenue growth of 22% (excluding acquisitions) suggests residential depth revenue may have grown by almost 30%. With listings growth at 11%, yield growth appears to have been around 18% including the 8% price rise from July. This is positive news for REA as yield growth has been lackluster in recent periods.
Core operating costs continue to rise, up 13% in the quarter as REA makes further investments in strategic initiatives that has needed more people on board.
The Smartline and Mortgage Choice businesses also saw good revenue growth in the quarter from growth in settlements and brokers. The Mortgage Choice integration should be completed by 3Q23f.
Investment view
Property market conditions remain buoyant providing support for residential listings to maintain growth through the year. We do note, however, that the Federal election due next year may introduce a short period of 'wait and see', possibly in 4Q22f.
REA's franchise in Australia remains dominant with 12.6 million monthly average website visitors, of which 7.3 million used it exclusively in July. REA's app has been downloaded by 11.3 million users. REA's strategy includes expanding its product suite into mortgage applications, home loans and other services and while these will take time and investment, it will position the company for good long term growth and exposes it to a much larger addressable market by revenue.
REA's overseas and associate investments (MOVE, REA India, Simpology, Realtair, CampaignAgent, PropertyGuru) are still in early stage development, requiring time and investment effort that will drag slightly on REA's profit. These investments create earnings risk for REA as there is uncertainty about the success of each venture.
We could see further volatility in listings this year but REA appears to be reasonably impervious to the effects. The business remains a very strong entity but we continue to think this is more than fully reflected in the share price.
We maintain our Hold recommendation on REA.
