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Rightmove - 75% discount for customers

Nicholas Hyett, Equity Analyst | 20 March 2020 | A A A
Rightmove - 75% discount for customers

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Rightmove plc Ord GBP 0.001

Sell: 621.00 | Buy: 621.60 | Change 17.60 (2.90%)
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Having previously announced certain customers could defer payments of up to £275 a month for six months Rightmove has now gone further and said they will be offering a 75% discount to all customers for the next 4 months.

The move comes as the number of property transactions failing to complete rose and the group anticipates changes to rental behaviour.

The move is expect to hit revenues by £65-£75m in this financial year.

The shares rose 4% in early trading.

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Our view

Rightmove provides an online portal to connect buyers and sellers, earning revenue by charging fees to estate agents looking to access its audience of potential buyers.

On paper Rightmove should be the kind of company that's ideally placed to ride out the coronavirus outbreak - it's high margin, capital light, cash generative and debt free. Unfortunately, the same cannot be said for its customers.

Estate agents have been struggling for some time. Costs have risen just as digital estate agents like Purplebricks steal customers by offering agency services at a fraction of the price.

Rightmove had been plugging the hole by winning business from new home developers and investing to broaden the services on offer. New analytics and data-based tools have proved popular, with many customers tacking extra products onto existing subscriptions. Revenue from new home builders is particularly exposed to the economic cycle though.

A spike in the number of property transactions falling through has clearly got Rightmove worried and it's taken the decision to sacrifice profits in the short term to help customers keep their heads above water. That's sensible, but whether it will be enough remains to be seen.

Overall, Rightmove's dominant market position and attractive business model should stand it in good stead. But if the looming economic slowdown sees a shakeout in the estate agency industry, that could have permanent consequences for revenue and profits, especially as Rightmove's fees are charged per office rather than per listing. A policy of paying out all excess cash as either buybacks or dividends means the pain could well find its way to shareholder returns too despite analysts forecasting a dividend yield of 1.7% this year.

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Full Year Results - 28/02/20

Rightmove reported an 8% increase revenues for the year to £289m, with underlying operating profits rising by the same amount to reach £219.7m. That reflects strong growth in business with new home builders and continued uptake in Rightmove's higher priced subscription packages - offsetting a decline in the number of active estate agents.

The final dividend of 4.4p per share is 10% up on last year, taking the full year dividend to 7.2p.

Average revenue per advertiser (ARPA) finished the year 8% higher at £1,088 per month. This reflects continued growth in advertising from new home builders, uptake in more expensive subscriptions and price rises.

The number of agents using its services dropped 3% to 19,809, reflecting a decline in the number of smaller agencies offsetting strong growth in partnerships with house builders. Rightmove expects this trend to continue in the short term, despite acknowledging an optimistic start to 2020 following the election.

Underlying costs increased in line with revenue and margins remained constant at 75.9%.

Rightmove finished the year with a net cash balance of £36.3m, up from £19.9m last year.

Website traffic was 2% higher over the year, averaging 135 million visits per month - driven by mobile traffic which was up over 14%.

The group completed its acquisition of Van Mildert, landlord and tenant protection specialist, in September 2019.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.