It has been a very rough week for Rightmove. They have managed to botch the launch of a coronavirus initiative for their customers, encourage disgruntled agents to form an anti-Rightmove Facebook page and "SayNoToRightmove" website, relaunch their coronavirus initiative costing them more than it should have, cancel their final dividend, and have their CEO publicly apologise for the mess.
How did the market leader get it so wrong and, in the end, will it matter?
For years Rightmove has operated a 70 percent-plus EBITDA business, making large profits and creating enormous value for its shareholders. Since listing in 2006, Rightmove has generated a 1,500 percent return for its shareholders.
In the 2019 financial year, the company had a pretax profit of GBP 213 million on revenues of just GBP 289 million. To deliver this, Rightmove increased its ARPA (average revenue per advertiser) by 8.2 percent – through a combination of price increases and premium product sales. During the year it returned GBP 149 million to shareholders through dividends and buybacks and had GBP 61 million in current assets as of 31 December 2019.
The rapid emergence of the coronavirus crisis and the virtual grinding to a halt of the UK housing market has placed enormous financial pressure on the whole industry – from developers, through agents, and of course marketplaces.
Zoopla has reported that UK housing sales could plunge by 60 percent in the next three months. The pressure placed on UK estate agents is substantial as they operate on relatively thin economics. The average home sales price is GBP 240,000 and with commission rates of 1.25 percent, the average commission is just GBP 3,000. This compounded by the pressure of the online estate agents makes every penny spent on marketing critical.
This was highlighted by Rightmove in February in its full-year report to the market where it said: "slower H2 2019 will impact some agents in early 2020 – some smaller agents will continue to struggle with lack of cash flow from slower activity".
Rightmove "Helping" the Industry: Its Ill-Conceived Deferment Package
Like many portals and marketplaces around the world, and knowing its customers were in financial pain due to a slow market dramatically exacerbated by the coronavirus crisis, Rightmove decided it wanted to help its customers through this tough period.
On Wednesday 18th March, Rightmove launched a deferred payment package:
"The scheme will give qualifying agents the option to defer the payment of £275 per branch of their monthly invoiced costs each month for six months starting from 1st May. The amounts deferred would be paid back evenly over the same term after six months of the first deferral period.
"Agents also have the alternative option to defer payment of £500 per branch of their monthly invoiced costs each month for three months paid back evenly over the same term after three months of the first deferral period.
"For agents on a lettings-only membership package, the scheme allows deferrals of £150 each month for six months or £250 each month for three months."
Rightmove then defined a qualifying agent as being:
Have fewer than 25 branches on Rightmove
Have been a continuous Rightmove customer for at least 12 months
Pay by direct debit and have paid their Rightmove invoices on time for the past two years
Provide evidence of sales or let the agreed pipeline (or proof of funds).
This package was never going to work as it didn't take into account the real issue that estate agents are facing – they won't have much income for the foreseeable future. The package was likely to do was cause its customers even more financial pain in the future.
Secondly, the sheer complexity of the package and the complex qualification requirements made it look like it was built by accountants who had never met a client and were seeking the perfect solution.
Finally, it appears the package was designed to maintain the financial growth rate of the business (as best it could) to serve its shareholder masters.
The Industry's Quick and Brutal Response
The response from the industry was quick and brutal. Property Industry Eye ran an article about the deferment package which garnered over 200 negative comments. This helped launch a Boycott Rightmove Facebook group (which now has 1,300 members) and the www.SayNoToRightmove.co.uk website (which now has over 900 agents registered).
The following day (19th March) OnTheMarket took the more pragmatic, agent-friendly approach and launched a simple 33 percent reduction for those customers on full tariff listing agreements. What they didn't say is how many of its customers this would affect.
On the 20th March, Zoopla, clearly smelling blood in the water, put together an offer for their customers designed to entice agents with fewer than 30 branches to turn off Rightmove and just use Zoopla.
If an agent commits to leaving Rightmove at the end of their contract, they would get nine months for free advertising on Zoopla – as long as they enter into an 18-month contract on normal fee levels following the free period.
Zoopla also launched another similar option, whereby agents who are not on Rightmove or don't want to come off Rightmove, would get three months of free advertising before returning to normal fee levels (as long as they sign an 18-month contract). These three months may increase to five depending on the impact of the coronavirus.
Rightmove Backflips, Apologizes and Comes to the Party
The pressure on Rightmove was enormous and just 2 days later (Friday 20th March) the company backflipped and rolled out a new discount package for its customers. In an announcement it said
"Instead of offering the deferred payment scheme to independent estate and lettings agents, we're going to reduce your Rightmove bill by 75% for four months, starting from 1st April whether you advertise residential properties, new homes or commercial premises.
"You don't need to apply for this discount, your invoice will automatically come through reduced by 75%. To be clear, this is not a deferred payment, this is a discount that you don't need to pay back."
This was followed a few days later with the CEO of Rightmove, Peter Brooks-Johnson, admitting to an agent "we don't always get things right, but I like to think we can see it when we get things wrong and we do something about it."
What has been the Short-Term Impact?
The last week has taken a toll on Rightmove that will have a significant impact in the short term.
The already negative view of Rightmove has been enhanced through its launch of the deferment program and then backflip.
Agents are still coalescing around the Facebook group and the SayNoToRightmove site. This is likely to intensify as agents have time on their hands during the lockdown and social distancing.
The Rightmove share price dropped 15 percent following the announcement of the deferred payment package and the negative response of the industry. This wiped around GBP 700 million off the market cap. However, since the announcement of the 75 percent reduction in fees, the share price has recovered almost all the lost ground.
The 75 percent discount package is expected to cost Rightmove between GBP 65 million and 75 million in profit this year.
Revenues will be significantly lower this year driven by the discount package, the churn of agents and the highly likely significant reduction in taking up premium products.
In 2019, Rightmove lost 6 percent of its advertisers and this is likely to grow in 2020 as agents take up the Zoopla offer or simply just go out of business.
Rightmove has had to cancel its final dividend and suspend any financial guidance for the market.
The last week has been one of self-inflicted wounds for the team at Rightmove. Instead of leading the industry, they have let the industry dictate to them how to run their business. They missed the market with the deferred payment package and have been playing catch up ever since.
The question now is what this means in the long term and what can Rightmove realistically do to position itself well and resume its leadership position once the crisis is over. In part 2 of the article, we will look at these two questions in detail.