REA Group (ASX:REA) share price on watch after delivering strong Q1 growth

REA had a strong first quarter…

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The REA Group Limited (ASX: REA) share price will be one to watch closely on Friday.

This follows the release of the property listings company's first quarter update this morning.

REA Group share price on watch after strong start to FY 2022

  • Revenue up 35% to $264 million (22% excluding acquisitions)
  • Operating expenses up 49% to $107 million (13% excluding acquisitions)
  • EBITDA jumped 25% to $158 million (24% excluding acquisitions)
  • Free cash flow up 20% to $49 million (29% excluding acquisitions)
  • National listings up 11% (Sydney down 7%, Melbourne up 79%)

What happened during the quarter?

For the three months ended 30 September, REA delivered a 35% increase in revenue to $264 million and a 25% lift in EBITDA including associates to $158 million. This was driven by growth across all Australian segments, underpinned by an increase in national listings.

The company notes that the Australian residential property market showed resilience during the quarter. After modest declines in July, national listings increased 11% for the quarter, with Sydney down 7% and Melbourne up 79% due to lockdown impacts in the prior period.

Also boosting REA's financial performance was a rise in Australian Residential revenue from increased depth and Premiere penetration, price increases from 1 July, and continued growth in add-on products.

The release also highlights that its Financial Services segment performed well. Management notes that the Smartline and Mortgage Choice businesses experienced strong growth in operating revenues. This was driven by continued growth in settlements and brokers. It also advised that the Mortgage Choice integration is progressing well.

Another positive is that the Indian market has rebounded following the negative COVID impacts experienced in the second half of FY 2021. REA India achieved strong year on year revenue growth, driven by Housing.com's core business and growth in adjacency products.

Finally, taking some of the shine off the result was an increase in REA's costs. This reflects a combination of continued investment to deliver strategic initiatives, which has seen higher headcount and salaries in a tight labour market, and reduced operating costs in the prior period as it navigated through COVID uncertainty.

Nevertheless, the company continues to target positive operating jaws (revenue growth greater than costs growth) in FY 2022, excluding the impact of acquisitions.

Management commentary

REA Group's Chief Executive Officer, Owen Wilson, commented: "REA has delivered an impressive result given the prolonged lockdowns in Sydney and Melbourne. Our performance reflects the continued value our premium listing products are delivering to our customers, and realestate.com.au's clear position as the number one place to search, find and finance property."

"Our teams have made excellent progress across a number of key initiatives including the integration of our Mortgage Choice and Smartline businesses, the roll out of new products such as our Connect offering and our integrated rental applications platform, all of which provide the foundations for continued growth," he added.

Trading update

Potentially giving the REA Group share price a boost today will be management's comments on current trading.

It explained: "Residential property market conditions are positive, with high levels of buyer enquiry underpinned by continued low interest rates and healthy bank liquidity. October National residential listings were up 16% YoY, with an increase in Melbourne of 20% and 29% in Sydney."

Though, the company has warned that growth rates are likely to slow as it cycles very strong prior period listing volumes. It also notes that regulatory measures to slow house price inflation could impact listing volumes.

Nevertheless, the company's CEO remains positive on REA's outlook.

"As vaccination milestones are met and restrictions continue to be lifted, we expect property markets across Australia to revert to normal operating settings. Buyers remain out in force and this strong demand is likely to fuel ongoing positive momentum," concluded Mr Wilson.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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