REA Group Ltd (ASX: REA) shares are very popular among ASX investors.
Of course, investors can buy them directly.
However, through investing in News Corporation (ASX: NWS), which is the majority owner of REA Group, investors can also buy REA Group shares indirectly.
Which is the better option? Let's dive into it.
As one of the best businesses on the ASX, it's easy to see why REA Group shares are very popular among ASX investors.
Along with Seek Ltd (ASX: SEK) and Car Group Ltd (ASX: CAR), it is one of three ASX-listed online classifieds businesses. It operates realestate.com, which attracts 12.4 million unique visitors every month. If you've ever searched for a house, it's likely you've come across REA Group's platform. Its closest competitor is Domain Holdings Australia Ltd (ASX: DHG), which receives substantially lower traffic to its platform relative to REA Group's. REA Group's market-leading position has allowed the company to compound earnings at 15% per annum over the past decade.
However, earlier this week, it was also revealed that the consumer watchdog ACCC was investigating REA Group. As reported by The Guardian, it has been alleged that REA Group has been "hurting consumers, both by increasing the costs associated with buying, selling and renting, and by denying them flexibility and choice in the way they advertise and search for property".
This has raised the risk profile for REA Group investors.
Additionally, after climbing 145% over the past five years, REA Group shares are less compelling than they once were. The company is currently trading on a price-to-earnings ratio of 53, which isn't exactly cheap.
Those looking to invest in REA Group can also do so indirectly by buying News Corporation shares. Media conglomerate News Corporation, controlled by the Murdoch family, is the majority owner of REA Group. It is dual-listed on the NASDAQ and ASX.
The company comprises businesses across a range of media, including: digital real estate services, subscription video services in Australia, news and information services, and book publishing. News Corporation initially acquired a 44% stake in REA Group in the early 2000s, which has increased to 61% over time.
In FY24, 16% of revenue came from its Digital Real Estate Services segment, which includes REA Group. Meanwhile, 19% came from Subscription Video Services, 22% from its Dow Jones segment, 21% from its Book Publishing segment, and 22% from News Media.
By investing in News Corporation, investors gain exposure to REA Group, as well as several other segments.
Its Dow Jones segment includes well-known publications such as The Wall Street Journal, Barron's, MarketWatch, and Investor's Business Daily. Book publishing consists of HarperCollins, the second-largest book publisher in the world based on global revenue.
The News Media segment comprises News Corp Australia, News UK, and the New York Post. News Corporation Australia is a leading news and information provider in Australia. Its portfolio includes The Australian, The Weekend Australian, The Herald Sun, and The Courier Mail, as well as digital platforms for each.
This provides an added layer of diversification for those concerned about REA Group's regulatory changes or valuation.
News Corporation has also outperformed REA Group over the past five years, rising 188%. A significant part of this gain has come within the last 12 months, with the news conglomerate up 26%.
REA Group shares are often touted as having among the best track records on the ASX. As a market leader with a compelling and popular product, the company certainly has a lot going for it. It is likely to continue doing well. However, the company faces regulatory challenges, and its valuation isn't as compelling as it once was.
Those looking for some level of exposure to REA Group may wish to consider investing in News Corporation (its majority owner) instead. News Corporation's five-year track record is even better than REA Group's, which may be a selling point for some investors.
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