In a rare opportunity for investors, the valuation of REA Group Ltd (ASX: REA), a high-quality stock on the Australian Securities Exchange (ASX), has significantly dropped. The stock has fallen more than 15% since August and is down 19% from February, despite an improving operating environment. This decline presents a potential buy-and-hold opportunity for long-term investors.
REA Group is Australia’s leading real estate portal, providing exposure to realestate.com.au and a suite of other businesses such as realcommercial.com.au, flatmates.com.au, and Mortgage Choice, among others. The company also holds investments in Simpology, Arealytics, Athena Home Loans, and stakes in international ventures like REA India and Move Inc.
Strong Market Position
REA Group’s dominant position in the Australian market is bolstered by realestate.com.au, which outpaces its nearest competitor, Domain, by a significant margin. In FY25, realestate.com.au recorded 132.2 million average monthly visits, four times more than its closest competitor. According to the Ipsos iris audience measurement service, the company extended its audience leadership by 17% year-over-year.
This strong market presence allows REA Group to charge premium fees for property listings, a crucial revenue stream. The company’s focus on personalized experiences and consumer engagement has led to a significant increase in seller leads, further solidifying its market dominance.
Improving Financials
As a digital enterprise, REA Group benefits from rising profit margins as it scales. The company’s revenue growth outpaces its expenses, a testament to its efficient digital infrastructure. In FY25, Australian revenue climbed 14% to $1.54 billion, with operating expenses increasing by 12%. In India, revenue surged 25% to $129 million, with operating expenses growing 13% to $158 million.
Overall, group revenue increased 15% to $1.67 billion, while net profit surged 23% to $564 million.
The company is targeting double-digit residential buy yield growth, with a 7% national average Premiere+ price rise, and expects to enhance its profit margins in FY26.
Solid Outlook for the Future
The Reserve Bank of Australia’s multiple cash rate cuts in 2025 have positively impacted property demand, which bodes well for REA Group’s earnings in the medium term. The company reported a 55% year-over-year increase in seller leads on realestate.com.au and a 2% rise in average monthly buyer inquiries, reaching 2.3 million. Additionally, active membership increased by 12% year-over-year.
Despite the recent decline in share price, REA Group remains an appealing long-term investment. As long as there is a need for property advertising in Australia, REA Group is poised to capitalize on its strong market position and financial health.
In conclusion, the current downturn in REA Group’s valuation presents a unique opportunity for investors seeking a robust, long-term investment in the Australian real estate sector. With its strong market presence, improving financials, and positive outlook, REA Group is well-positioned for future growth.
