- Customer numbers growing
- Full-year guidance confirmed
- Shares fall on ad revenue forecast
Investors in property portal Rightmove (RMV) must be getting used to the market taking a glass-half-empty view of the business, with today’s trading update a prime example.
Despite positive news on users and advertisers, the shares have been knocked to the bottom of the FTSE 100 performance table with a loss of 32p or 5.5%.
WHAT DID THE COMPANY SAY?
Ahead of its AGM (annual general meeting), Rightmove provided an update on trading for the four months to the end of April and confirmed its full-year outlook for revenue and profits.
Housing market activity has picked up markedly, with agreed sales in the first four months of 2024 up 17% on the same period last year and prices resuming their upward trend.
While higher mortgage rates are impacting first-time buyers, other parts of the market are moving ahead and with buyers and sellers ‘increasingly looking to transact’ the firm sees total UK house sales reaching 1.1 million this year.
Meanwhile, the rental market remains extremely busy with average rents rising 7.6% on the same period last year as the firm estimates there is a shortfall of some 50,000 properties compared with 2019.
Against this backdrop, consumers are spending over 80% of their time on Rightmove when searching on property portals and are increasingly engaging with the site resulting in a 40% uplift in email leads through the Rightmove app.
The number of estate agents using the site has increased by around 250 due to ‘strong agent retention and particular strength in the lettings market’ while independent agent subscriptions to the firm’s Optimiser Edge product are ahead of expectations.
However, while the increase in membership numbers is good for revenue and earnings, lettings-only agents have a lower ARPA (average revenue per advertiser) so the firm has lowered its estimate of average growth in ad revenues this year from over £100 to between £75 and £85, and it is this change which traders and analysts have picked up on rather than the positive overall trend and the increase in customer numbers.
EXPERT VIEWS
AJ Bell investment director Russ Mould observed: ‘Being the market leader creates a virtuous circle for Rightmove. Its site has the most listings and is therefore the one which prospective property buyers will go to when looking for their next home. This reinforces its position as a must-have product for estate agencies and housebuilders. It also gives Rightmove significant pricing power when it comes to securing subscriptions from these customers.
‘However, a shift in the mix of business, with strong growth in the number of lettings agents subscribing to the platform, is affecting the key average revenue per advertiser metric and could imply Rightmove is finding it harder to secure new customers or upsell existing users in the new-build and traditional estate agent markets’, added Mould.
‘While the increase in agency numbers is a clear positive for the group, the statement notes the dilutive ARPA impact of new lettings only agents, particularly those with lower stock’, said Numis analyst Gareth Davies.
‘Although mix shifts a little, reflecting the higher customer numbers at lower ARPA, we make no change to our headline estimates,’ continued Davies.
‘At a free cash flow yield of almost 5% we see Rightmove’s valuation as attractive and continue to believe the market is overstating the risk to the group as a result of CoStar’s acquisition of OnTheMarket. We reiterate our BUY and 695p target.’
Disclaimer: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (James Crux) own shares in AJ Bell.
