Is the REA Group Limited (ASX: REA) share price a buy after falling 7% in just one month?
The property portal business has been on a downward trend since it released its first quarter FY20 update.
REA Group said that its revenue after broker commissions fell 9% to $202.3 million, operating expenses (excluding associates and joint ventures) improved 2% to $87.4 million, earnings before interest, tax, depreciation and amortisation (EBITDA) fell 14% to $114.9 million and free cash flow declined 20% to $41.8 million.
The cause of the decline was a fall in new residential listing volumes and new project commencements. National listings declined 15% over the September 2019 quarter, including listing declines of 22% in Sydney and 21% in Melbourne.
However, a major part of the revenue decline was due to an extended duration of the Premiere All Listings from 45 days to 60 days which increased revenue deferral for the quarter. Without that, revenue would have only dropped 6% and EBITDA would have declined 9%.
Despite the large listings decline, REA Group was able to benefit from price increases which it implemented on 1 July 2019 and stronger levels of Premiere depth product penetration on the back of its latest Premiere offering.
Things are looking up for REA Group with the buyers back into the market which has sent the house prices in Sydney & Melbourne up by mid-single digits in just a few months after the RBA's interest rate cuts. Hopefully this causes more sellers to come to the market too.
However, listings for the first half of FY20 are likely to be lower than the first half last year, so revenue growth is expected to be weighted in the second half of FY20.
In October 2019 listing volumes were down by 15% compared to October 2018, with declines of 15% in Sydney and 17% declines in Sydney, so the second quarter could also be tough.
Foolish takeaway
REA Group is trading at 37x FY21's estimated earnings. It's certainly not cheap at the moment, perhaps justifiably with how low interest rates are, but with the price lower it looks like a it could be good long-term value, particularly with its investments in overseas property sites.
