REA Group Posts Strong Figures Despite Falling Asian Revenue

The Australian portal operator REA Group today released its results for the first half of the 2021 financial year with EBITDA ($290.2, +9%), Net profit ($172.1, +13%) and the interim dividend (59 cents per share, +7%) all seeing gains despite a drop in overall revenue ($430.4. -2%). The results follow a trend seen across the last few company results of cost-cutting initiatives helping to alleviate the adverse effects of COVID-19 on domestic and overseas property markets.

Today's performance report is likely to have an impact across several portal markets as the Newscorp majority-owned company is one of the largest and most diverse portal companies in the world running the domestic market-leading realestate.com.au portal as well as iProperty Malaysia, Thinkofliving of Prakard in Thailand, Squarefoot in Hong Kong and the ex-pat portal MyFun in China. REA Group is also a substantial shareholder in 99 Group which operates iProperty Singapore, 99.co and rumah123 in Indonesia as well being a major shareholder in Realtor.com in The United States and the company recently increased its stake in Elara Technologies (59.65% as at 4th February) which operates three portals in India (Housing, Makaan and Proptiger).

Signs of Recovery in Australian Market

Despite a regional lockdown in Victoria seeing a 44% drop in listings for the first quarter, overall Australian listing volumes for the half-year were up 4% with Sydney leading the way (19%). Revenue from residential real estate increased to $295.6, (+4%) but was offset by decreases in other areas of the Australian market, especially the commercial and developer segment which was down 7%. While today's report expects developer revenue to recover in the near future, revenue in the commercial sector was expected to "remain challenged, with listings pressure anticipated to continue in the second half".

Group CEO Owen Wilson was upbeat about the domestic market's outlook and pointed to increased traffic on the company's main portal as a sign that the outlook was bright for the Australian property market:

"Our flagship site realestate.com.au delivered a stand-out performance for the half. In November we set a new record of 13 million people, or 65% of Australia’s adult population on our site. Buyer activity also continued to soar with enquiry volumes up 44%, delivering significantly more high-quality leads to our customers"

Media, Data and other revenue down 12%

Continuing a trend of decreased revenue from the portal company's data and display advertising products, revenue for the first half of FY21 was down 12% overall for the segment with the main culprit being the revenue from display advertising which was adversely affected by COVID-19's impact on domestic new build developers. Revenue for REA Group's data products saw some growth, however, and the company's financial services saw a 12% uptick in revenue for the half-year.

Effective Cost Cutting

REA Group's report cited a drop in operating expenses ($148.8, -13%) as a big reason for the positive numbers elsewhere with some marketing, staff expenses, travel and other costs likely to ramp back up again as the world emerges from the pandemic. Operating costs for the whole FY20 are predicted to be broadly in line with those of FY21. The company is reported to have recorded cash levels of $179,9 at the start of the calendar year.

Asia revenues down 38%

The company's overall momentum through the half-year seems to have been largely kept on track by its Australian operations as Asian revenue fell significantly in the face of COVID-19 restrictions. A lot of Australian listings were not syndicated to the company's portal for Chinese investors MyFun with "COVID-19 related issues" cited as reasoning why many listings did not get translated.

The other reason cited for a drop in the comparative H1 FY21 figures for the company's Asian segment was the consolidation of 99 Group which took place in March of 2020. Under the agreement REA Group remained a substantial partner in 99 Group which now operates 99.co as well as iProperty Singapore and Rumah123 in Indonesia. REA Group retains control of iProperty in Malaysia and today's press release reiterated the Similarweb-backed claims that the portal is #1 in Malaysia.

The story of COVID-19 impacting bottom lines was similar in India where despite a 57% growth in audience for its flagship portal Housing.com, Elara Technologies saw revenue decline by 17% to which management responded by cutting operating costs by 24%. Elara's financials will be consolidated from H2 and earnings are expected to pick up to the tune of somewhere between $12-17 million.

Referral Model Working for Realtor.com

REA Group's 20% stake in Move Inc. (parent company of #2 US portal Realtor.com) proved profitable in H1 as the portal's move to a referral-based model proved successful. Average monthly unique users were up by 37% to 80 million and the contribution to REA Group's bottom line improved significantly from a $1.5 million loss last year to a $9.4 million profit, and while some of this was attributed to a deferral in marketing costs, the headwinds for the American real estate market are thought to be very favourable.

All figures given are in Australian Dollars.