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Rightmove - average revenue per advertiser boost

Sophie Lund-Yates, Equity Analyst | 30 July 2021 | A A A
Rightmove - average revenue per advertiser boost

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Rightmove plc Ord GBP 0.001

Sell: 727.40 | Buy: 728.00 | Change -9.00 (-1.22%)
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Half year revenue rose 58% compared to last year, reaching £149.9m. That reflects increased customer spending and average revenue per advertiser (ARPA). Compared to pre-pandemic times, revenue's up 4%. Underlying operating profit was up 91% to £117.1m.

For the second half, Rightmove expects further ARPA growth, ongoing uptake of more lucrative products and for the number of agencies that use its platform to remain "broadly stable.". However, the group said growth from estate agent customers is being slightly offset by new home developers, who are seeing such strong demand they aren't spending as much on advertising.

An interim dividend of 3.0p was announced.

The shares were little moved following the announcement.

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Our View

The pandemic has created a housing market boom. That's good news for Rightmove.

First, the government's stamp duty holiday made the market decidedly frothy. We're already a nation obsessed with home ownership, and being cooped up in a house that wasn't right during lockdowns kick-started many property searches.

This means the outflow of bread-and-butter estate agent customers (who pay Rightmove to advertise their properties), is falling less sharply than feared - they're down 4% on pre-pandemic times. And, encouragingly, the average revenue from advertisers (ARPA) has more than recovered - in fact it's at record levels. That's largely because for the estate agents still using Rightmove, they can't really afford to stop, so Rightmove has excellent pricing power.

However, there has long been pressure on traditional estate agents. DIY options like Purplebricks or Strike means traditional estate agents are being forced out of business. Agency numbers have been falling for some time, which is troubling since ARPA is calculated per estate agent office, rather than per-transaction. We suspect this pressure will continue in the long-term. That makes Rightmove's ability to cross sell existing customers more expensive premium advertising packages crucial. 16% of Rightmove's agencies now pay for its so-called Optimiser product. That's a significant improvement on recent years, but still a small piece of the whole.

It's also reasonable to expect housing market activity to temper in the near to medium term. As life returns to normal and demand settles down, we could see Rightmove's sales growth rate to cool down a little. A nasty recession would also be bad news, as it would disproportionately affect its estate agent customers.

We should note Rightmove's stellar operating model means it's in a good position to stomach disruption. It continues to be an incredibly cash generative business. Costs are low because the group essentially runs a website. Operating margins have rebuilt and now stand at an impressive 77%.

Ultimately, Rightmove is being supported by a very buoyant housing market, and has outperformed our expectations. Plus its status as an essential tool for sellers should hold it in good stead for now. But we're concerned that prolonged pressure on estate agents muddies the long-term view. The market doesn't seem to share our worry, with the price to earnings valuation above the ten-year average.

Rightmove key facts

  • Price/Earnings ratio: 31.1
  • 10 year average Price/Earnings ratio: 26.4
  • Prospective dividend yield (next 12 months): 1.1%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Half year results

Total average revenue per advertiser (ARPA) rose 63% to £1,163 per month - a record level and up from £1.1bn last year. Membership numbers are broadly flat at 19,116, with new estate agent branches offsetting declines in the number of new homes development customers. Site visits are up 56% on 2020, and are now 1.4bn a month. 16% of Rightmove's customers now use its more lucrative "optimiser" product, up from 9%.

Agency, which includes Rightmove's estate agent customers, saw revenue rise 65% to £109.6m. Compared to 2019 revenue's up 5%. That reflects higher spending and the reversal of the discounts Rightmove gave its customers during the pandemic. Agency ARPA increased significantly from £685m to £1,130 per month. The number of branches paying for Rightmove has risen 1% to 16,052, but this is still down 4% on pre-pandemic times.

In New Homes, which is a much smaller division, revenue rose 46% to £25.3m, but these are down 9% compared to 2019. New Homes ARPA rose £493 to £1,329 per development, per month. Rightmove said the new homes market has been forward-sold for the whole period, which meant some developments cut back on marketing spending as it didn't need Rightmove's services to help sell units.

Other revenue was up 38% to £15.0m, driven by higher website traffic and higher demand for data services.

The higher revenues fed into a 12 percentage-point increase in operating margins to 77%. Free cash flow of £121.2m was up from £76.0m at the same time last year. The group has no financial debt, like loans, but it does have £12.0m of lease liabilities. Including these, Rightmove has a net cash position of £55.7m.

Find out more about Rightmove shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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 for more information.