An interesting analysis of Rightmove’s performance on the stock market has led to questions about the long-term profitability and viability of property portals.
Steven Chen, an analyst contributing to the Seeking Alpha website aimed at US readers, says Rightmove “continues to lock in its superior profitability and capital efficiency” in what he calls “this winner-takes-all market” of property portals in the UK.
But he warns that Rightmove’s “growth engine seems to be running out of steam lately and many investors (including those here at Seeking Alpha) are worried about the long-term prospect of the property portal business.”
To back up his assertion, he cites figures taken from Rightmove full-year results between 2010 and 2018 for membership growth, traffic growth and Average Revenue Per Agent (ARPA) growth - the latter has widely been regarded as a key performance indicator for portals in the UK.
On membership from 2010, Rightmove has seen most years at 2.0 per cent to 5.0 per cent growth, but 2018 saw zero growth.
On traffic from 2010, Rightmove has seen between 10 per cent and 27 per cent growth except for 2017 and 2018 when in each year the growth was a more modest 4.0 per cent.
And finally on ARPA, he reveals that growth from 2010 to 2013 was between 15 and 23 per cent annually; from 2014 to 2017 it’s been only 10 to 13 per cent; and in 2018 it was just 9.0 per cent.
“Essentially, the ability to charge more revenue per customer depends on the viewership of the portal because more traffics generate more value for advertisers' money. We noticed that the ARPA is now growing at the slowest pace since 2010” explains Chen.
Looking at stock market performance he says “revenue per share, earnings per share, and free cash flow per share are now all below their respective long-term trendline, implying slowdowns in business expansion.”
While he believes Rightmove is broadly correct to assume future short-term growth may happen as agents increasingly abandon local press advertising, Chen insists that only product innovation can help it in the longer term.
“This means that more new products like Tenant Passport should come to the market … Investors would need to keep their eyes on the traction and monetization of such new products as well as any new innovations coming out from the product pipeline” he advises.
You can see Chen’s full analysis here.