Has the opportunity passed in this quality compounder?

What were the key takeaways from this result? What surprised you the most?

Key takeaways were that real estate listings are still strong, however growth is expected to be moderately negative over FY23. Despite this the company is still confident of achieving double digit revenue growth through price rises and uptake of new products.

Costs will be managed to grow less than revenue which should result in solid earnings growth for FY23 despite a weaker listings environment. It was interesting to see such a strong uptake for its new higher priced product. If this continues it will help to further underpin revenue growth despite lower listing volumes.

What was the market’s reaction to this result? Was this an overreaction, an under reaction or appropriate?

The market viewed this result positively (currently up 4.5%). The stock has been strong leading into the result, so I think this is an appropriate reaction to a good result.

Would you buy, hold or sell REA Group on the back of these results?

Over the short term, I would HOLD as the stock has bounced fairly hard from its lows over the past quarter and the volatile near-term outlook for growth stocks given rising interest rates.

On a long term “bottom drawer” view I would BUY.

REA has benefited from its first mover advantage and is the clear market leader with a proven track record of innovation and pricing power. It is well managed, with high returns on capital, good cashflow generation, strong balance sheet and plenty of growth avenues available to it. It has been sold off aggressively along with other growth stocks this year which presents an opportunity for those with a long-term time horizon.

What’s your outlook on REA Group and its sector over FY23?

I think it’s a given that the real estate listings market overall will suffer a decline over FY23 but as market leader with good management team, strong pricing power, launching of new products and ability to flex its cost base I think REA will fare better than most.

From 1-5, where 1 is cheap and 5 is expensive, how much value are you seeing in the market right now? Are you excited or are you cautious on the market in general?

Rating: 4 

Interest rates still need to go up from here to tame inflation which may require bringing the economy into recession. 

This makes me cautious on the market broadly, particularly post the July market bounce, as higher interest rates and a recession puts pressure on both earnings and valuation multiples.

However I am excited about the opportunities that a further sell off will present for those with a long term time horizon to selectively pick up some high-quality growth stocks at bargain prices. 

More August 2022 Reporting Season coverage

The Livewire Team is working with our contributors to provide coverage of a selection of stocks this reporting season. You can access all the reporting season content by clicking here.