We recently researched REA Group (ASX:REA) in The Dynamic Investor following the release of full-year results. The shares, having traded in a narrow range over the year, jumped on the day of the results release. This reflected REA’s confidence in delivering double-digit yield growth and operating leverage beyond FY26.

Accordingly, we assess whether the shares present value at current levels. Or, are there factors warranting a more cautious view?

About REA Group

REA Group is a leading operator of real estate marketplaces in Australia and India. In Australia the company operates under the realestate.com.au and realcommercial.com.au brands. REA India (via Housing.com) currently is one of the top three portals in terms of audience. In Australia, REA is the market leader with 4x the amount of monthly traffic of its nearest competitor. REA owns 20% of the number two US property marketplace, realtor.com, in partnership with its major shareholder, News Corporation. It has also acquired Mortgage Choice within its Financial Services segment, which consists of commissions earned from mortgage broking.

Key Fundamental Drivers

Revenue Trends

During FY25, listings (i.e. volume) grew by +1%. Company guidance for flat volumes in FY26 was slightly below consensus expectations. Having said that, listing volumes are inherently hard to predict.

Volume growth numbers have softened to a degree, with July national new Buy listings down 8% compared to the prior corresponding period. Based on recent Cotality data, growth figures for Sydney and Melbourne (-5% and -9%, respectively for July) have remained negative into early August. These figures align with REA’s expectations for a negative 1Q26 volume outcome. Company guidance for 1% listings growth for the full year (FY26) assumes the benefit from two interest rate cuts.

REA reported +16% revenue growth for the Australian Residential business, which was underpinned by yield growth. Namely, +14% residential buy yield was driven by several factors: i) The 10% average national price rise, ii) Increased depth penetration and iii) Growth in value-added (or ‘depth’) products (i.e. Audience Maximiser and Luxe).

Yield growth is expected to be the main driver of revenue growth in FY26. The Company is confident in double-digit buy yield growth in FY26 (likely to be +12-13%). Further, the rollout of new value-added products allows REA to justify price growth, regardless of competitive dynamics. In particular, Audience Maximiser, has doubled price in the recent round of recontracting.

REA India Losses Expected to Widen

REA India’s revenue increased by 25% to $129m, with this strong growth largely driven by adjacent services on Housing Edge. REA flagged they had introduced controls over the 2H25 which had the anticipated effect of slowing volumes. This resulted in Housing Edge reporting a revenue decline of 15% in 4Q25.

Audience metrics were mixed, with REA India’s web audience lead seeing a drop to 1.0x (vs 1.3x) but share of app downloads (as a percentage of the top four online portals in India) improving to 56% (vs 40% in FY24).

Management noted they expect volume reductions to continue and revenue to decline in FY26. This is due to the implementation of certain platform controls (i.e. know-your-customer) which will weigh on volumes.

REA is still investing heavily into REA India, with a 13% increase in operating expenses compared to FY24. The higher operating expenses led to an EBITDA loss of -A$28m (-A$36m in FY24). REA expects a widening EBITDA loss in FY26. However, the expected EBITDA loss for FY26 this is likely to be lower than peak losses in FY23.

Balance Sheet Optionality

REA repaid all external debt ($209m) following the sale of PropertyGuru in December 2024. As at 30 June 2025, the Group had a cash balance of $429m.

The robust balance sheet position also supports increased dividends. Notably, the FY25 dividend payout ratio increased by 4% to 58%. This higher ratio may be sustainable moving forward given the strong free cashflow being generated. Having said that, the sustainability of a higher dividend payout ratio is dependent on Merger & Acquisition (M&A) opportunities. To this end, a $400m undrawn debt facility (maturing September 2028) remains in place, providing scope to pursue significant M&A opportunities.

Fundamental View

We highlight several factors warranting a cautious view on the shares:

i. Unappealing trading multiple. REA shares are trading on a 1-year forward P/E multiple of ~49.5x, which is at a premium to the average of ~47x over the last two years. The current multiple is also considered elevated relative to the EPS growth profile of ~17% over FY25-28 on a CAGR basis.

ii. Notwithstanding the support to revenue growth from yield growth, the rate of growth over the next three years is expected to be below the +16% achieved in FY25. We forecast ~13-14% in each year from FY26-28. The step-down in revenue growth is due to lower-than-expected growth in depth penetration from new product (in particular Luxe), as well as subdued (and volatile) listings growth.

iii. It is still too early to determine whether REA will need to step up operating expenditure and/or reduce pricing in response to increased competition. Hence, in the near term, there is the risk of operating expenditure exceeding Company guidance. This is especially in light of a new CEO potentially changing the current strategy (which is centred on double-digit yield growth).

Charting View

The share price of REA jumped higher after the result but it then stopped short at a major resistance line near $260. Apart from a brief spike higher in February and a spike lower in April, REA has generally been confined to a trading range the past several months between about $230 and $260. A recent break above $260 would have been a positive sign, but now it has fallen back into the range again. For now it seems as though investors can look to buy on a dip towards $230. A break under $230 would be a negative.

 

Michael Gable is managing director of Fairmont Equities.

 

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