(Updated 27 August 2008)
On Friday 29th August, Rightmove will be releasing its interim results – ie its half year results for the CY 2008.
Over the last 12 months, the Rightmove share price has more than halved from a 52 week high of GBP6.34 to a current price of GBP2.99. There are likely to be two key factors driving the nervousness in investors, the first is the current performance of the UK property market and the second is the rise of low cost / no cost competitors.
The UK Property Market
The UK property market is in a great deal of pain. The number of transactions have fallen and also the average selling price has fallen. In the UK, estate agents work off an average commission of around 1.7 percent and therefore the decline in volume of transactions combined with the decrease in average sales price, means that competition for sales has increased significantly and some agents have not been able to cope and have therefore left the market. In fact, this is exacerbated by the fact that anyone can become an estate agent – as there are no licencing or training required. The net result is that size of the estate agency market is likey to decrease. The impact on Rightmove, who has claimed up to 80% of agents are using them, is likely to be significant as agents leave the market. If an agent leaves the market and therefore cancels their Rightmove subscription, this lost revenue comes of the bottom line as there are basically no costs of sales in managing these customers.
Increase in Low Cost / No Cost Competitors
Over the last 12 – 18 months there has been a rise in the number of low cost / no cost competitors. In the category of low cost competitors, you will find propertyfinder.com, hotproperty.co.uk and findaproperty.co.uk – these sites tend to charge around GBP150 per month compared to GBP400+ for Rightmove. In the category of no cost competitors, you will find globrix.co.uk, zoomf.com, dothomes.com, and propertylive.co.uk, the soon to be launched site from the National Association of Estate Agents. The combined impact of this is to provide estate agents who as under pressure with a low cost option to Rightmove. Now many of these agents may not take up the cheap offer and leave Rightmove, however the investor market will see these low cost / no cost competitors are being able to put pricing pressure on Rightmove and therefore they are probably re-rating the stock appropriately.
Therefore, for the first half of the year i expect revenues to be up a little over the previous half year, however the rate of revenue growth will have slowed. The key driver of this slowing in revenue growth will a decrease in the number of agents using the service (most likely due to agents going out of business). This has probably been offset to some extent by price increases. I assume that strong cost management will see the traditionally strong margins of the business remain stable if not down a litte. Friday will be an interesting day.
