Treasure Chest: REA Group

Array
(
    [0] => Array
        (
            [0] => ((REA))
        )

    [1] => Array
        (
            [0] => REA
        )

)

This story features REA GROUP LIMITED.
For more info SHARE ANALYSIS: REA
The company is included in ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea is REA Group.

-History suggests there is too much concern around Co-Star's entry into the Australian market
-RBC Capital suggests ACCC probe is likely to have a negligible outcome
-REA's competitive position, network effects and pricing model place remain robust
-The stock's valuation looks compelling within historical context

By Danielle Ecuyer

FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.

Whose Idea Is It?

RBC Capital

The subject:

REA Group ((REA)).

RBC Capital has concluded market concerns over the ACCC probe and competition from Co-Star have been overly discounted.

More info:

REA Group remains one of Australia’s most recognisable names, dominating both the Australian property search market as well as the local share market.

Post August results, investor sentiment has noticeably softened, weighed down by concerns over increased competition, regulation, valuation, and weaker listing volumes.

This morning, RBC Capital initiated coverage, arguing the company is “No Fading Star”.

The broker directly addresses the bearish narratives, contending REA’s fundamentals and business model remain intact and resilient.

Pushing back on Co-Star threat

The most prominent concern is the entry of US giant Co-Star via its acquisition of Domain Holdings from Nine Entertainment. Investors fear Domain, backed by Co-Star’s financial firepower, could chip away at REA’s dominance locally.

RBC notes Co-Star has a mixed record in residential markets, contrasting success in commercial property with a failure to secure share in UK residential via its OnTheMove acquisition.

Moreover, Co-Star’s acquisitive approach has often decimated margins through heavy marketing and sales costs. Without scale, differentiated pricing, or an entrenched data platform in Australia, RBC argues Co-Star is unlikely to mount a material challenge.

At worst, the broker sees heightened marketing spend rather than a price war.

At the August FY25 results, Morgan Stanley acknowledged potential risks from Co-Star’s deep pockets and aggressive strategy but, like RBC, emphasised REA’s robust management, pricing power, and positive structural growth story.

Network effects and VPA drive pricing power

REA continues to command network effects, capturing around 85% of buyer engagement and 72% of website visits. Its strength is amplified by Australia’s vendor-paid advertising (VPA) model, which shifts the cost of premium advertising to vendors, giving REA unique pricing power.

This has underpinned depth revenue growth, with premium upgrades like “Premiere” listings driving yield expansion.

Despite listing volumes falling by about one-third since 2012, REA has grown depth revenue more than 15-fold. RBC highlights the success of the group’s tiered, value-based pricing model, translating housing price appreciation and traffic into higher revenue per transaction.

Listings Dip, brokers eye 2H26 recovery

Macquarie recently highlighted residential listings fell -4% in September year-on-year, with 1Q26 volumes down -8%. Sydney and Melbourne listings declined -6% and -4% respectively, though September showed modest improvement.

At its AGM, REA reiterated FY26 guidance, pointing to “strong underlying fundamentals and the potential for further interest-rate cuts” to support buyer demand.

Morgans echoed this, noting 1H26 listings are forecast to be down -4% year-on-year, but a rebound is likely in 2H26 thanks to easier comparables.

This broker sees REA achieving mid-teens EPS growth, forecasting a 16% compound growth rate to FY28, supported by yield growth of 12% against volume growth of just 1%.

While competitive threats from Co-Star remain to be seen, they could influence valuation.

Citi, Macquarie, and Morgans —three of FNArena’s daily monitored brokers— all sit on Hold-equivalent ratings but with higher target prices. Citi remains at $279.25, Macquarie at $255, and Morgans at $257.

Citi also recently highlighted regulatory changes in India that led REA to shut down its Housing Edge business, which had contributed $60m in revenue and $12m in earnings in FY25.

Citi considers a sharpened strategic focus on the core Housing.com platform as positive, given the Indian market remains highly competitive.

ACCC probe dismissed as low risk

The Australian Competition and Consumer Commission’s probe into REA has also unsettled sentiment.

RBC is dismissive, calling it a “nothing to see here” distraction, noting previous ACCC reviews produced no adverse outcomes.

The broker believes REA’s vendor pricing model is sustainable because it delivers superior outcomes for customers.

Yield growth and diversification in focus

A recurring concern is whether REA can continue to grow yield.

RBC points to a decade of yield expansion despite structurally lower property turnover driven by affordability issues, aging demographics, and high stamp duty.

The broker forecasts low-teens yield growth in the medium term, with a five-year compound growth rate of around 12%.

Revenue forecasts for FY26 and FY27 sit 1% and 3% above consensus.

Beyond listings, REA is expanding into adjacent markets such as financial services, data analytics, and agent workflow tools, which RBC views as underappreciated opportunities to diversify revenue streams.

History suggests valuation is attractive

Valuation remains a sticking point for many investors. RBC argues REA trades at a discount to its own historic averages, with the stock on about 15 times EV/Sales versus a five-year average of 16, and 25 times FY26 EV/EBITDA versus 27 historically.

Meanwhile, RBC Economics is forecasting a 7% rise in national property values over the coming year, which would reinforce the outlook for residential yields.

Among FNArena’s daily monitored brokers, the consensus target price sits at $275.036, with three Buy-equivalent ratings and four Holds.

RBC has joined the more bullish camp, initiating with an Outperform rating and a $270 target.

Despite short-term jitters over Co-Star, regulation, and listings weakness, analysts agree REA retains leadership, pricing power, and structural growth momentum.

The author holds a position in REA Group.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms