The stockmarket is clearly bipolar – one day it hates a profit result and then the next day it loves it!
That's exactly what has happened with Australia's leading online property advertiser REA Group Limited (ASX: REA). The share price fell by 8% to a low of $39.41 when it released its full year results yesterday, but has climbed over 7.5% today and is now trading closer to $44.30. That's a swing of more than 12.5% in less than two trading sessions!
It was a clear over-reaction by the market to a pretty remarkable set of results. Here are five impressive highlights from REA's full year results presentation:
1. Strong EPS and earnings growth – Earnings per share (EPS) and net profit after tax (NPAT) both increased by 24%, despite a 4% decline in Australian listing volumes. REA has been able to drive this result through a strong uptake in its premium listing product that operates on a much higher margin than its regular listing service.
2. Operating costs controlled – Operational costs grew by only 12% which was well below total revenue growth of 20%. This demonstrates REA's ability to generate additional revenue for smaller incremental increases in the cost base. In addition to this, the company's capital light operating model has been reinforced with the percentage of capital expenditure to revenue declining steadily since 2011 – it is now less than 6% of total revenues.
3. Clear market leader – REA commands nearly 3x as many views as its nearest competitor. What's even more impressive is that 65% of REA's monthly audience do not even visit a competitor site to compare listings. On top of this, viewers spend on average 5.7x more time viewing listings on REA than its closest competitor. These figures demonstrate REA's dominant position as the clear market leader in the sector.
4. International expansion is gaining traction – REA's operations in Europe showed healthy growth in revenue, earnings and listing volumes. Although still in its infancy compared to its domestic operations, international listing volumes increased by 20% and this trend is likely to continue with the company now expanding its operations into new regions in France. REA is already the market leader in Luxembourg and is also rapidly growing its market share in the much larger Italian market.
5. Strategic Investments – REA has gained significant exposure to the world's fastest growing property market through its investment in iProperty Group Ltd (ASX: IPP). REA now holds a 21.3% stake in the company that has become Asia's leading online property group. iProperty has market-leading positions in Malaysia, Hong Kong, Indonesia, Macua and Thailand with excellent potential for long-term growth. REA Group has also taken a 20% stake in Move Inc. that will give it exposure to the world's largest property market. Move Inc. operates realtor.com which is the second-largest online real estate destination in the USA. The signs from this investment have been positive so far with the number of unique visitors to the site increasing by 52% over the last year.
Although the shares are still trading around 30x earnings, the growth outlook for REA is still positive and this premium is justified with the most recent results. Investors who already own the stock should keep holding and although those investors looking to get in might have missed out on yesterday's opportunity, any signs of weakness should be a chance to get in and hold for the long term.
REA's growth might be impressive, but The Motley Fool has found two even faster-growing companies for you to look at!
