A leading city analyst firm has warned that Rightmove may not be a great bet in the short to medium term. The portal company yesterday announced that its discounted fees would be extended with agents in England continuing to receive 75% discounts through August and 60% in September. Although the news will have been greeted warmly by its agent customers, Rightmove’s stock price fell as much as 8% yesterday after the announcement and leading city analysts at Hargreaves-Lansdown predict that “the housing market [is] likely to get worse before it gets better, we expect it to be a challenging few years for the group.”
Rightmove’s stock has long been a darling of investors in the UK and before the coronavirus crisis hit its price rose sharply to a record high of 701GBX in February on the back of the portal’s market dominance. Since then the company’s initially tone-deaf response to the crisis and a reaction to a perceived high-handed approach and increasingly unsustainable prices from its agent customers has put Rightmove on the back foot. The group revealed yesterday that since January it has already lost 3.8% of its advertising customers and according to the Hargreaves-Lansdown report, “the worst is yet to come.”
The report does see the long term prospects for Rightmove shares as positive and predicts that its dominant market position will help it win out. Interestingly, the underlying economics of the portal’s value proposition are seen as a fantastic business model.
“A decade or so ago, agents typically spent around £2,500 per office per month on print media. Rightmove's fees are currently a little under £1,100 a month. And since it's just managing a website, any higher prices near enough drop straight through to profit. High margins and low capital requirements make for an attractive and cash generative business model.”
It will be interesting to see if yesterday’s announcement sees Rightmove change tack somewhat and prioritise the threat of losing its customer base over metrics like ARPA which until recently had seen its stock perform so well.