What property slowdown?

REA Group delivers a blow to Fairfax

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 16, 2012 4:06 pm AEST

While house price growth might be hard to come by, one part of the market continues to grow strongly – online property advertising. Realestate.com.au owner REA Group (ASX: REA) has today reported a 27% jump in net profit to $87m for the 2012 financial year, on revenues of just $277.6m. The company also increased its cash balance by 32% – and now stands at a whopping $181.6m. Total dividend for the year is 33 cents per share, full franked, and 27% higher than last years.

This result shows the success online lists can have – following on from yesterday's Carsales.com's profit increase of 23% and the power of the so-called 'network effect'. More listings means more people visit the site, which leads to more listings – you get the picture.

The company's offshore real estate sites continue to do well. casa.it, which is Italy's market-leading property site, according to the company, grew revenues by 35% to $22.4 million, while immoRegion.fr, the French site, grew revenues by 23% in the 2012 financial year. Hong Kong appears to be a disappointment with earnings falling 8%.

A continued drive into new markets such as commercial and "media & developer" (which serves the property development and display media market) is also bringing results, with both sectors increasing revenues at a higher rate than residential. These two sectors now represent 40% of total Australian revenues.

The results will no doubt please 62% owner News Corporation (ASX: NWS), and be a blow to Fairfax Media Limited (ASX: FXJ) owner of domain.com.au, Australia's second largest real estate listing site.

The Foolish bottom line

With a war chest of $181m and the company's stated goal of being the leading digital marketing company for property, globally, one wonders when it might turn its eyes on ASX listed iProperty Group Ltd (ASX: IPP), which runs 18 property websites across Asia, including market leading portals in Indonesia, Malaysia, Hong Kong and Singapore. iProperty Group's market cap is a touch over $170m.

With REA Group's Hong Kong site showing falling revenues, it might be fairly soon.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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