REA Group slumps as Google tests new real estate ad format

The news: REA Group fell as shares of online real estate companies tumbled in morning trade including US-listed Zillow Group (-10.8%), CoStar Group (-7.8%) and Rocket Companies (-4.7%) after Alphabet's Google unveiled that it is testing a new format that places homes-for-sale ads directly at the top of search results, rather than directing users to third-party sites.

Shares of REA Group tumbled 2.85% to $183.70 at 12:47pm AEDT.

The context: Google has been testing demand for its new features, including adding home sales listings and property details directly into its search results and providing the ability to directly contact real estate agents and request home tours in select markets instead of recommending third party online real estate sites.

However, analysts from Citi said that despite concerns raised by the market following Zillow's recent sell off, Google's 'new homes for sale' listing is unlikely to significantly affect REA Group.

Citi identified the primary risk as a potential reduction in search traffic. However, they pointed out that approximately 80% of REA's traffic comes directly to the site. This high level of direct engagement substantially reduces REA’s vulnerability to alterations in Google’s search algorithms and presentation, Citi said.