Rightmove plc (RMV) Ord GBP 0.001

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Full year revenue rose 5% to £304.9m compared to 2019. Compared to 2020, revenue's up 48% because of the discounts handed to estate agents during the pandemic.

Underlying operating profit was also up 5% on 2019, reaching £231m.

The group expects housing market activity to normalise. Rightmove clarified it's "not materially impacted by the property market cycle other than in the most extreme circumstances". The housing supply shortage seen in the last year has reduced the number of new estate agents.

A final dividend of 4.8p was announced, taking the total payment to 7.8p.

The shares rose 3.6% following the announcement.

Our View

Rightmove is the ultimate lesson in pricing power. Regardless of what's going on in the wider market, whether it's up or down, today's estate agents can ill afford not to advertise on Rightmove.

That allows Rightmove to pump up its prices as it so chooses, average revenue per estate agent (ARPA) is running at well over £1,000. It also offers insulation from the housing market rollercoaster. It makes money from agents, rather than being too bothered about how many houses are being sold.

Running a website also essentially means adding each new customer is costless, feeding into an envious operating margin position of 74%. That gives the group enormous flexibility.

There are some things to consider though. The main one is that the number of estate agents is falling. DIY options like Purplebricks or Strike means traditional estate agents are being forced out of business. That's 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 more expensive premium advertising packages to a higher proportion of existing customers crucial.

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 from pandemic-induced highs, we could see Rightmove's sales growth rate 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.

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 concerns, with a price to earnings ratio close to 26.

Full year results (figures compared to pre-pandemic levels)

Total revenue growth was held back by a 10% reduction in revenue from New Home developments, who saw such heightened demand, they didn't need to advertise as heavily.

This was offset by an increase in the biggest segment, Agency, where revenue was up 7% to £224.5m. That reflected increased use of digital products by agents, as well as price increases. Average revenue per agent (ARPA) rose 12% to £1,155, while agency numbers remained broadly flat.

Other revenue reached £30.4m, up 24%, reflecting demand for Data Services products, Surveyor Comparable Tool and other additional products.

Operating margins remained flat at 74%, but this was higher than 2020's 66%.

Rightmove generated free cash flow of £194.3m, and had net cash of £43.0m.

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