House prices in Sydney and Melbourne are still charging ahead, but that’s of no longer of any benefit to Fairfax Media (FXJ) and its Domain online property business, and probably to its bigger competitor, News Corp and its 61% owned subsidiary, REAG Group (REA), judging by the market reaction yesterday to poor news from Fairfax.
Fairfax Media shares took a hammering yesterday, dropping nearly 10% at one stage after it warned first-half earnings for its key Domain real estate business will be weaker. Fairfax shares ended the day down more than 4% at 77 cents after touching a low of 75.5 cents, the lowest since mid May this year.
News Corp shares fell more than 2% to $15.88, after REA shares lost 3.7% to end at $47.50. They hit an intraday low of $45.50 which was the lowest they have been for 13 months.
The sell off came as Fairfax suggested its revenue performance so far in 2016-17 was a little better than a year ago.
The company said year-to-date group revenue is currently 6% to 7% below that of a year ago, in a trading update issued ahead of the annual meeting in Melbourne yesterday.
That was an improvement on an expected eight to nine per cent revenue fall, compared to last year, given in the 2016-17 outlook at the company’s full-year results in August. It was a pretty thin claim to make seeing it was still a large fall anyway.
Revenue at metropolitan media is down 8%, community media 10%, New Zealand media 4% and Macquarie Media 1%. And the performance of Domain, is worrying, certainly for the wider market.
While Domain’s revenue is up 2% (and 11% for its total digital business), earnings have weakened.
CEO, Greg Hywood said in the trading update that Domain’s earnings before interest, tax, depreciation and amortisation (EBITDA) were likely to be slightly lower for the half-year "due to listings softness and continuing investment in the business".
New listings up to the end of October were down 18 per cent in Sydney and down five per cent in Melbourne, Fairfax said, albeit against a strong rise in the previous corresponding period,” he said yesterday.
“We remain confident in the outlook for Domain,” Mr Hywood added (as he would).
In August, REA Group, 61% owned by News Corp said it had experienced a weaker-than-expected fourth quarter – which it blamed on the extended election. But it said this weakness had continued into July, but the company was confident of recovering that revenue in subsequent months.
"As we have seen with previous elections, the Federal election resulted in lower listing volumes across the campaign period. The uncertainty surrounding the election outcome has contributed to July listings being down 11% compared to July last year,” REA said in its August full year profit statement.
"As a result we expect first half revenue growth to be skewed towards the second quarter. Our headline expense growth in the first half will be higher than revenue growth entirely due to the inclusion of iProperty."
News Corp reports next Tuesday morning, Sydney time and it will be interesting to see what it says about REA, and what REA says in its quarterly report the same day in Australia.
