Digital real estate platform operator REA Group (ASX: REA) produced solid results for FY 2024 after a resilient performance in H1 FY 2024. REA’s core revenue from local listings across residential, commercial and developers lifted by 24% to $1.09bn relative to FY 2023. India also experienced strong growth in revenue of 31% to $103.1m. This overseas investment is not profitable, but EBITDA improved by 6% to -$36m.
A significant jump in the volume of listings in Australia and the continual uptake of REA’s more expensive and premium offering underpinned the strong performance in Australia. The big lift in listings for the second half is illustrated below. As usual, these drivers were responsible for the uplift of 24% in net profit after tax to $461m and earnings per share of $3.49.
Management has agreed to pay a fully franked final dividend of 102 cents per share, an increase of 23% and it will be paid on 13 September 2024. REA’s efforts in India seemed to be the focal point of the earnings call as analysts probed the management team for growth and investment cost estimates. Understandably, analysts want estimates to feed their valuation models but there ought to be a greater focus on what factors will likely lead to dominance in India.
India’s Real Estate Market Is Different for REA Group
India is different from Australia in so many ways, especially in media. Why is the media landscape so important? As I alluded to in my coverage of REA’s H1 FY 2024 results, the commercial partnership between News Corporation (formerly News Limited) and REA was a pivotal catalyst behind its viewership dominance. REA’s emergence as the leading property advertiser coincided with News Limited’s commanding foothold over Australian media, holding a newspaper market share of between 65% and 75% during that time.
So, the critical question is whether a similar opportunity could arise in India. It’s important to understand the stark contrast between not only the scale but the ownership structure of media outlets across India. As you can see, there is a significantly broader and more diverse range of media publications due to the myriad languages and ethnicities.
Source: Ministry of Information and Broadcasting and Wikipedia
According to Media Ownership Monitor’s investigations between December 2018 and May 2019, 58 media outlets across television, print, radio and online were owned by 39 companies and 45 individual owners. Unlike Australia where mass media is dominated by three key players, India’s media ownership structure is highly fragmented. In light of the fragmented media ownership dynamic along with a multitude of Indian languages, I believe the potential emergence of a few dominant media players is unlikely.
Given the unlikelihood of the emergence of a dominant mass media organisation, REA and local competitors will likely resort to deploying more capital towards marketing and keep forging relationships with media owners. This is much more capital-intensive relative to REA’s shrewd move to partner with News Limited in the early years of digital advertising.
Competition For REA Group In India
Housing.com is REA’s digital property platform in India and is being pursued by 99Acres.com, operated by local digital conglomerate InfoEdge (India) Limited (NSEI: NAUKRI). The gap between Housing and 99Acres has narrowed as illustrated by the share of downloads and web traffic.
The share of app downloads for Housing reduced from 46% to 40% relative to H1 FY 2024 whereas 99Acres increased from 30% to 35%. In InfoEdge’s most recent quarterly results for Q1 FY 2025 (Quarter Ended 30 June 2024), the company interestingly disclosed a different set of website traffic share results, showing 99Acres as the leader with Housing and MagicBricks in joint second. Both REA and InfoEdge disclosed SimilarWeb as their web traffic source. InfoEdge also disclosed the bounce rate and length of time spent on each platform, which shows much more favourable metrics compared to Housing.
Source: InfoEdge Q1 FY 2025 Investor Presentation slides 22 & 23
It seems buyers and agents are spending more time and are more engaged on 99Acres based on the above statistics provided by SimilarWeb. On the financial front, Housing or REA India recorded $103m in revenue and an EBITDA loss of -$36m for FY 2024. 99Acres generated around $64m in revenue and a loss of -$12m based on a historical currency conversion rate of ₹1.000 INR = A$0.01840 as of 29 March 2024 via Wise. 99Acres appears to be scaling better despite capturing less revenue.
It’s difficult to predict who will win the digital property platform battle in India but I can assert with some confidence that competition will continue to be fierce. Such heat generally induces lower overall returns on capital. Perhaps this is why REA’s management team is relaxing its investment pedal in India.
REA’s forward price-to-earnings multiple is currently sitting around 51x slightly higher than the 5-year average of 46x and much higher than the 10-year average of 38x. After analysing India’s media landscape, a multiple lower than the decade average would make the investment case more palatable. Expectations remain lofty and the investment case is not as asymmetric as I initially thought before researching into the Indian market. Nonetheless the Australian business is obviously of very high quality.
Subsequent to the financial reporting, REA Group announced that it will sell its stake in Singaporean business Property Guru for approximately A$286m. It said, “The investment in PropertyGuru currently has a net carrying value of A$136m and therefore a non-core gain on completion of approximately A$150m will be recorded in FY25.” This shows that it is possible to profit from investing in emerging markets even if the ultimate result is that the business is sold..
At the time of publication the REA Group share price is sitting close to all-time highs.
Disclosure: the author of this article does not own shares in REA. The editor of this article, Claude Walker, does own shares in REA. This article is not intended to form the basis of an investment decision and is not an official recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).
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