REA Earnings Report

On the 6th of August REA Group ASX: REA released their FY21 results. The highlights show nothing short of extraordinary results from the company with NPAT* up 178%. So why has REA share price fallen on these results?

REA Earnings Report FY21

REA: A Solid Growth Company

REA Group is a leading global digital business, specialising in property. The group has 2,600 people working across three continents.

Putting it simply REA is a digital advertising business specialising in property

Across the group they have a number of subsidies which many Australians will be familiar with.

REA Earnings Report

Here’s the full list of their brands

REA is the country’s leading share property website. They also operate Flatmates.com to facilitate share accommodation. Most renters will be familiar with 1Form. This is an online rental application form operated by the group.

Across Asia REA Group owns leading websites in Malaysia (iProperty.com.my) and Hong Kong (squarefoot.com.hk), China (myfun.com), Thailand (thinkofliving.com), and India, (Elara Technologies: Housing.com, Makaan.com and PropTiger.com).

REA group has been a favourite amongst investors as it has grown revenues, EBIT, and site traffic massively year on year. With an exception of the 2020 crash.

REA Earnings Report

REA Earnings Report Share Price

REA shares have performed exceptionally delivering strong results for share holders. Over the past year shares are up a massive 43.2%. This has far exceeded the broader market return of 21.73%.

Over the past ten years REA shares are up 1,133%.

Following their FY21 earnings release on Friday the 6th of August, the share price dropped 4.7%

Since the COVID crash, REA shares have shot up massively, and have been pushing all time highs in 2021.

REA Earnings Report: FY21 Results

REA has highlighted:

  • Revenue of $928m, up 13%
  • EBITDA including associates of $565m, up 19%
  • Net profit increased 18% to $318 million.
  • EPS of 247 cents, up 21%
  • Full year dividend of 131 cents per share, up 19% year on year

Revenue growth was driven by a 13% increase in the Australian business, reflecting a strong Residential market recovery despite significant first quarter listing declines in Melbourne due to COVID lockdown measures.

“This has been a defining year for REA, successfully navigating the pandemic to deliver an excellent financial result and emerge an even stronger business”

REA CEO Owen Wilson

The Group result also includes the consolidation of the Elara business from 1 January 2021. Excluding the impact of acquisitions, revenue increased by 11% for the year, EBITDA including associates1 increased by 21% and NPAT1 was up 24%

REA Results: Strong Results, Yet Price Drops

REA managed to release strong results, which has outperformed consensus estimates. From this we should have expected strong returns for investors. Yet the share price fell 4.7%.

Generally, with strong results we can see shares fall for some of the following reasons;

Why do shares fall on strong earnings report?
  • Poor Future Guidance/Outlook
  • Dowards Revisions
  • Cash-Flow and Capitisation Issues
  • Market Volatility

The report from REA showed excellent results across the board, with strong recovery from the COVID pandemic. The group did acknowledges that COVID-19 and lockdowns could impact its performance.

REA’s Share Price has dropped due to Market Volatility, and Future Guidance relating to COVID-19 lockdowns

We did see this materlaise in its results with July listing volumes falling 3% due to weakness in the Sydney market because of its lockdown.

With Australia entering it’s third COVID bubble and further lockdowns, REA’s results could be impacted

REA Earnings Report
Australia COVID-19 Cases Source, Wikipedia

Arguably with a PE ratio of 152.12x, the market expected higher growth from REA. This places REA well into the high PE category.

PE 20+: The company is overvalued/has high investor sentiment regarding growth

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Quick Fundamentals

Market Capitalization$132,117,217
PE152.12x
ROA15.43%
ROE13.49%
NTA/Share$1.67

REA Final Dividend FY21

REA announced an fully-franked final dividend of 72 cents. At the current share price, this represents a net yield of 0.45%, and a grossed up 0.64%. The Ex-Dividend date is 26/08/2021 with a payment date of 16/09/2021.

REA Dividend History

Although REA is no candidate for a “Dividend-Stock” like CBA we have seen undisputed excellent growth on their dividend year by year. Obviously excluding the COVID crash. Based on their current share price they have net yield of 0.82% and gross yield of 1.71% total.

REA’s Strong JAW Growth

REA’s operating JAW has grown substantially in FY 2021. Which has impacted the bottom line producing growing profits.

JAW: The jaws ratio is a measure used in finance to demonstrate the extent to which a trading entity’s income growth rate exceeds its expenses growth rate, measured as a percentage.

Source, Wikipedia

Revenue increased 11% and operating costs up only 3%, excluding the impact of Elara. Expenses have been kept low with a 20% reduction in marketing related spend.

The group is continuing its focus on JAW into the future. Which will help keep REA’s expenses in check and produce more great profits.

What Does REA’s 1H21 Results Mean For Investors?

REA’s results are largely linked to the recovery of the overall Australian economy. We have seen a fast “V-shaped recovery” across the board.

Unemployment

  • Number of employed people and hours worked in June both above pre-COVID-19 levels
  • Various federal and state government stimulus programmes continue.

Dwelling Values

  • National dwelling values 12.4% above the previous peak achieved in April 2020
  • All geographies up over the quarter and prior year. Regional growth strong.

Gross Domestic Product

  • GDP and GDP per capita up 1.1% and 0.8% respectively for the year to 31 March 2021
  • The household saving ratio of 11.6% remains well above the 1Q20 savings ratio of 7.9%.

We expect with continued government support and incentives that REA will continue to perform well with the recovery from the COVID pandemic and its impact on the economy.

Although REA’s result were strong and have shown resilience to the COVID crash, we would expect larger growth from a company with a massive earnings multiple of over 152x.

REA Earnings Report: Prophet’s Take

REA has delivered strong results on the back of the economic recovery. The group has managed to grow profits, revenues and website traffic, reaching new heights for the company.

Yet the share price is down, on the back of a warning of imminent COVID lockdowns.

REA has grown its JAW ratio and continues to keep an eye on expenses into the futue. Results will be dependant on the continued recovery from the COVID-19 pandemic.

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