Is REA MOVE-ing in the right direction?

Founder and Chief Investment Officer of Montgomery Investment Management
Print This Post A A A

Key Points:

  • News Corporation and REA’s takeover offer via a joint venture for US-based online real estate business Move cost US$950 million – which could be considered a fairly high price, given its earnings.
  • News will be able to shift Move to its platforms to increase traffic, however the US market isn’t as straightforward as the Australian market is.
  • Should the stars align for Move, it could become highly profitable (think hundreds of millions in US dollars), and REA would own a 20% slice of this action. But a lot of luck is still required.

One question that has persisted for a while with REA Group Limited (REA) is its retained earnings, i.e. for a capital light, debt-free business, where would these excess cash flows be reinvested? As of June 2014, the firm had accrued A$253.8 million of cash on its balance sheet - almost half of its total assets.

Moving opportunities

A US listed firm with a volatile earnings history, online real estate business Move Incorporated was not amongst the first of opportunities for these cash flows that came to mind for most analysts. A summary of its revenue and earnings was taken from its 2014 10K report and presented below.

Also from this edition