Rea (ASX:REA) is one of the top quality businesses listed on the ASX with a Quality score of 96. The primary component of the business is the online property portal realestate.com.au which dominates the Australian property online listing market. Their average daily audience of 2.74 million, is 3.6 times higher than their nearest competitor Domain Holdings Australia (ASX:DHG).
They have built a strong network advantage. Their strong audience attracts more buy listings, and having more listings attracts more viewers, creating a virtuous circle. This gives them a powerful moat and has enabled them to increase their prices at the same time as they are increasing their market share.
This dominant position also enables them to implement a rather unique element to their business model. Instead of the real estate agent paying for the listing, it is the vendor that pays for it. The real estate agent effectively becomes REA’s distributor as they encourage the vendor to place an ad on realestate.com.au to give themselves the best chance of selling, but are not disincentivised by the price as they are not the one paying.
A report by REA Group and PropTrack, found that properties not listed on realestate.com.au actually sell for an average price of 4% less than those that are listed. This is a compelling competitive advantage.
In addition to their dominant position in the Australian market, they are also building positions in overseas online real estate listing markets. These include:
India where they own 78% of REA India, up from 73.3% a year ago.
USA - where they own 20% of Move Inc. News Corp (ASX:NWS) owns the other 80%.
Southeast Asia - where they have a 17.3% interest in PropertyGuru (NYQ:PGRU)
REA meets the definition of a compounding quality business. That is, not only is it a high quality business, but it has been able to consistently grow the business over a long period of time. The chart below shows 18 years worth of rising revenues and EBITDA and the corresponding ascension of the share price.
REA enjoys high levels of Return on Equity and Return on Capital Employed. The later is consistently above 20% except for a brief dip during the pandemic.
Source: AGM Presentation, 16/11/23
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