Rightmove Shareholders Advised to Sell before Costar Purchases Rival Portal

Investment bank Citigroup has advised shareholders to sell their stock in the portal before CoStar completes the acquisition of OnTheMarket.

Rightmove shares have consistently increased in value over time. But now, Costar's imminent entry into the UK market marks a watershed moment for the UK market leader—which has suffered from a share price drop of more than 15% since news of the Costar/OnTheMarket deal broke.

With Costar set to invest £46.5M ($57.5M) into onTheMarket's marketing budget—on top of the initial $100M buyout—it appears as though Rightmove shares have gone from a safe bet to a ticking time bomb in a matter of weeks.

A research report published last week by Citi elaborated that "Facing well capitalized CoStar in commercial and residential changes the predictability of Rightmove's earnings."

Citi has forecasted that a worst-case scenario for Rightmove could see share prices drop by up to 30%, while a positive outcome could see increases of up to 20%.

Referring to previous challenges to Rightmove's dominant position, Citi suggested that "the firepower and ambition of CoStar means it could be trickier this time."

Costar CEO Andy Florance likened Rightmove to the Inland Revenue Service—a monopolizing presence in the market—when he announced Costar's transatlantic expansion plan. He has repeatedly questioned how Rightmove is able to operate at 72% margin without consequence:

"Public companies don't operate a 72% margin. To operate 72% margin is to say that there's no way any company could ever compete ever in that space."

In fairness to him, Florance has very quickly put his money where his mouth is, and now Rightmove shareholders are set to feel the stinging taste of defeat for a very long time.

Sleepless nights? Perhaps not, but when an investment bank urges you to sell your shares before things take a turn for the worse, it may be worth a listen.