Property and residential listings service REA Group [ASX:REA] fell on Wednesday as operating expenses growth outpaced revenue growth in 1Q23.
REA reported a 16% year-on-year (YoY) rise in revenue to $305 million. However, operating expenses rose 22% YoY to $131 million.
REA shares were down more than 4% late on Wednesday.
Year to date, REA shares are down 30%.
Source: Trading View
REA’s 1Q 2023 results
Here are the key results from REA’s Q1 FY23:
- Revenue up 16% YoY to $305 million
- Operating expenses up 22% YoY to $131 million
- EBITDA up 7% YoY to $169 million
- Operating EBITDA up 11% to $174 million
- Free cash flow up 15% to $57 million
REA said the Australian Residential business brought strong revenue growth with purchasing revenue up 6% on national price increase since July.
Rent revenue also went up 5% YoY, partially offset by a 1% decline in listings.
REA Group Chief Executive Officer Owen Wilson commented:
‘This result demonstrates the strength of our business and reflects the significant traction of our premium products as sellers increasingly seek to differentiate their properties. The listings environment was positive in the first quarter, with supply and demand continuing to rebalance in the major metropolitan markets.’
Commercial and developer revenue increased; however, it was also offset by less projects throughout the quarter.
Financial services revenue declined, as market activity slackened, ‘impacting settlement volumes and the impact of record settlements in the prior year’.
REA and the property price problem
REA is adding 54 new brokers to its brand and anticipates the benefits of integrating Mortgage Choice in Q3 FY23.
Having said that, REA admitted the residential property market in Australia has taken quite the beating after rapidly rising interest rates, stating:
‘Any further rate rises may see this continue, however, it is also clear the market is supported by positive fundamentals including record low unemployment, high household savings and increasing international migration, which should continue to underpin demand.’
While national Buy listings were down 18% YoY in October (Sydney down 31% and Melbourne 29%), REA hopes the rest of the year will compliment healthy listing volumes seen in the past quarter. Mr Wilson said:
‘We’ve seen the heat come out of the property market in recent months and while positive underlying fundamentals remain, we expect this moderation to persist as interest rates rise…
‘REA is well positioned in this environment, and we will continue to invest in the growth of our platforms and adjacent businesses to further increase the value we provide to our customers and consumers.’
REA estimates operating cost growth to be in mid to high single-digits in FY23.
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