REA bucks housing downturn to deliver revenue growth

Challenged by biting interest rates and softening consumer sentiment, REA Group unveils its plan to build on success after posting a $205m profit.

REA chief executive officer Owen Wilson says it can keep performing through the property slowdown as it delivered a $205m interim profit. Picture: John Feder/The Australian

Online listing company REA Group says it can keep performing through the property slowdown as it delivered a $205m interim profit.

The company, which has diversified into financial services and has a growing operation in India, called out the impact of interest rate increases and softening consumer sentiment, which have hit housing prices and volumes.

However, it says that longer-term housing market fundamentals remain positive.

“While the full effects of higher interest rates will take some time to become apparent and price declines are expected to continue, we anticipate stabilisation of the interest rate cycle will improve confidence and encourage increased activity,” REA chief executive Owen Wilson said.

He cited low unemployment, anticipated wage growth, and rising migration as positive forces.

“What gets lost is the underlying strength in our property market,” Mr Wilson said. ”Buyers are absolutely there.”

He acknowledged that borrowing capacity was shrinking and sellers had to come down to meet buyers but argued the market was still functioning well.

“I think what’s going to happen is that interest rates will peak probably around the middle of this year ... and then when we get to the point where it’s pretty clear we’re probably at the top, that’s when activity will really start to take off because people will have confidence you can make a decision to buy,” he said.

REA, which is majority-owned by News Corp, publisher of The Australian, said interim revenue lifted by 5 per cent to $617m and earnings before interest, taxes, depreciation, and amortisation, excluding associates, was down by 2 per cent to $359m. Net profit fell by 9 per cent to $205m and earnings per share slipped to 155c.

The overall revenue growth was underpinned by a 3 per cent lift in Australia, with yield growth across advertising products more than offsetting the challenging market environment and very strong prior year comparables, particularly in the last quarter. REA India performed strongly, with revenue up 48 per cent year on year.

Mr Wilson said the Australian property market was “heavily impacted” in the first half by unprecedented consecutive interest rate hikes. “While underlying demand remained healthy, uncertainty around future interest rate movements caused some sellers to pause and buyers to recalibrate as borrowing capacities fell,” he said.

“Despite these conditions, REA continued to deliver revenue and yield growth during the half. This performance underscores the strength of our products and audience, with customers increasingly relying on our premium products to maximise the impact of their campaigns,” he added.

In Australia, REA operates top residential and commercial sites realestate.com.au and realcommercial.com.au, data business PropTrack, and mortgage broker Mortgage Choice.

“In a challenging market, the value of realestate.com.au’s unparalleled audience, engaging consumer experiences, and rich data-driven insights becomes increasingly important. We are the number one property portal in each of our markets and remain keenly focused on building the engagement and loyalty of consumers throughout their property journey,” Mr Wilson said.

In January, national residential new listings were down 9 per cent year on year, with Sydney and Melbourne hit, but this could normalise later this year.

The yield from REA’s residential products is expected to grow at a double-digit rate this year as vendors take up more advanced products. Financial services operating revenues are likely to remain subdued due to lower settlements but the unit could benefit from refinancing activity prompted by the significant rollover of fixed rate loans.

REA said that the volume of listings for the second half was difficult to predict and, depending on the level of decline against the strong prior period comparables, the target of fiscal 2023 Australian positive operating jaws may not be achieved.

REA shares were down 2.6 per cent to $121.16.