REA Group Results: Extending Its Lead Over Domain on Pricing Miscalculations

We maintain our AUD 109 per share fair value estimate for wide-moat REA Group following its first-quarter results. Similar to narrow-moat Domain, as discussed in our analyst note “Domain Earnings: Domain Appears to be on Track for a Recovery Year,” REA Group looks on track for a bumper year due to recovering listing volumes for Australian property sales. Additionally, based on REA Group’s results, we also see further indication that Domain has been ceding listings market share in Queensland and Western Australia to REA Group, following Domain’s price increases there. However, we currently don’t expect this to permanently affect Domain’s listings market share in these geographies, as Domain can opt to not raise prices there next year, or, if need be, lower them. At current prices, REA Group’s shares screen as overvalued.