Rightmove ‘like a snowball rolling downhill’ says admiring City analyst
Wednesday, November 18, 2015
Rightmove has cornered its market and has been like a “snowball rolling downhill” with further potential for growth, a City analyst has said.
Steve Clayton, of Hargreaves Lansdown, has compared Rightmove with Auto Trader as an investment case.
He says: “Rightmove’s early start gave it a big advantage; the company was set up in 2000 by four big estate agency chains, so it was able to show a big slice of the market, making its website a must-see destination for buyers.
“Like a snowball rolling downhill, the bigger Rightmove became, the more likely it was to become bigger still, as agents found that if they were not on Rightmove, potential sellers would go to an agent who was.
“Rivals never got quite the same critical mass.”
Clayton goes on: “Rightmove believes that a decade ago, agents typically spent around £2,500 per office per month on print media.
“Today, Rightmove is on target for revenues per agent of £750 pcm.
“Estate agents still spend around £190m each year on print advertising, money which Rightmove hopes will migrate toward it over time.”
He describes Rightmove as “a very high quality business” with over 70% profit margins and the ability to impose “steady price increases” on agents.
Clayton also rates Auto Trader highly and points out: “Auto Trader and Rightmove have many things in common, including the people. Rightmove’s finance director used to work at Auto Trader, whilst Auto Trader’s chairman used to be Rightmove’s CEO [Ed Williams].
“The two shares trade on similar ratings, almost 35x forward earnings. The difference is that Auto Trader only listed this year, and having been owned by private equity house Apax, it still carries a lot of debt.”
While Auto Trader’s debt is falling fast, Clayton concludes that Rightmove has the better prospects.
Why?
“Simply because I think the ongoing level of spending by agents on press adverts that fewer and fewer people see, gives the company a great source for potential future growth, by persuading the agents that Rightmove will give them a bigger bang for their buck.”
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