Rightmove keeps on moving

It would have been fair to assume that a housing market downturn would send Rightmove’s (RMV) revenues tumbling. In fact, the opposite has happened as the property transaction website posted its fastest pace of revenue growth since 2018 in its results for the six months to 30 June.

Rightmove said this was due to its customers, mostly estate agencies, upping their packages to attract sales amid the housing market slowdown. It highlights the bind estate agencies are in. Fewer house sales means they are making less money, but to drum up business many feel they have little choice but to pay up for a better service from Rightmove. Weirdly, the more the housing downturn worsens, the more Rightmove could benefit as more agencies up their packages.

The risk is that a more severe downturn means agencies instead find cheaper ways to market their homes. That could be from using rival websites, such as Zoopla, or improving their own. For now, though, many seem dependent on Rightmove, a fact that underpins its high operating margin. It fell to 72 per cent from 75 per cent this time last year, but that is to be expected in a tough housing market and is still impressively high.

The big bear point for Rightmove has long been its price, but it is currently cheaper on a price-to-earnings ratio than it has been for several years, which could offer a good entry point for investors. The company is also asset-light, though it has net cash, so this is not too much of a concern. 

In short, although the PE ratio might put some investors off, we argue that Rightmove's ability to continue growing, even in a downturn, shows that it will achieve those earnings. Buy.

Last IC view: Buy, 555p, 3 March 2023