A stock picker's guide to REA Group Limited for 2015

realestate.com.au operator REA Group Limited (ASX:REA) is still a fast grower, but can it be a big hit as it enters the huge US real estate market in 2015?

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Quick quiz: Your spouse and you are thinking of moving, maybe closer to the beaches, but someplace with good shopping as well.

How would you find that new dream home?

Chances are you would have visited realestate.com.au, the dominant brand name in the property space.

The website had an average 33.6 million visits monthly as of the first quarter of financial year 2015, almost 3 times more than its nearest competitor. That puts it far ahead and means the brand name is still just as strong.

As an investor, did you also know that over the past five years REA Group Limited (ASX: REA) has given shareholders a total return of 39.3% annually on average?

Below are some things that stock pickers should know to see where the website operator is heading in 2015.

The brand and business

The company has such a strong competitive advantage in its brand name that among its monthly users over two-thirds don't even visit the company's next biggest competitor. Many real estate agencies continue to use it as their main way of listing properties to get maximum exposure and draw in potential buyers. This virtuous cycle keeps driving more business and advertising dollars to REA Group. In the 2014 financial year, revenue rose 30% yet net profit climbed a stunning 37%.

Business track record

That great result was not a one-off. Over the past ten years, it has been a fast grower with high net profit margins and return on equity. Ten years ago the stock was $1.19 a share, but now is $44.90- an amazing 36.7 times higher!

Strengths

Due to its high popularity and control of its market, the website operator can charge a premium for services. Other additional property related services like market research and tenancy form assistance make REA Group a one-stop shop for property hunters.

The rising housing market has also increased the number of online listings. This attracts new site visitors and helps strengthen the brand name in their minds. The company has zero long-term debt and rising cash flows.

Possible headwinds

There has been some backlash of real estate agency complaints concerning rising subscription fees and expenses. They feel it's too much too fast. Some critics suggested starting a new organisation and website uniting real estate agencies to negotiate better terms.

REA Group has scaled back some of the increases for a short time. This could affect earnings growth, but it may be better not to help create a competing force.

Also, rival domain.com.au, a leading property website owned by Fairfax Media Limited (ASX: FXJ) is trying to take back market share that the media company once had as the publisher of such newspapers as The Sydney Morning Herald and The Age. Fairfax has made developing Domain into a bigger online business a top priority. REA Group could see increased competition, which could potentially lessen its high margins and market dominance.

New ventures

The biggest move REA Group has made in a long time is the acquisition of the third largest property search company in the US called Move Inc. In a joint venture with media giant News Corp (ASX: NWS) it wants to enter the huge US property market. Current market leader Zillow Inc is in the middle of acquiring number two Trulia Inc.

The US property advertising market is highly fragmented, with the market leaders only holding a small percentage of the total. REA Group can put its expertise and News Corp's media network reach together to establish a rising force. This may cause a trade-off of growth for market share for the US business.

Earnings outlook

REA Group is forecast to grow earnings around 28% annually on average over the next two years. Similarly, dividend growth is expected to grow strongly. Currently trading at 33 times earnings, the stock appears fairly priced compared to projected growth. It also pays a small 1.5% fully franked yield.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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