From an unknown tech start-up to the undisputed king of the UK’s online property sector, Rightmove is a shining example of how to turn a simple idea into a whole lot of profit.
In its most recent full-year results, the London-listed property portal astounded investors by revealing it had achieved a record 71 per cent operating profit margin – by far the highest seen on the market in recent years.
The impressive margin is far higher than its closest peers, Auto Trader (55 per cent), Hargreaves Lansdown (52 per cent ) and data giant Relx (30 per cent).
So, how has Rightmove managed it?
AJ Bell investment director Russ Mould said the key to its success was the founders’ early move online.
Rightmove launched its website in 2000 – seven years before its biggest rival, Zoopla, and 15 years ahead of On The Market.
Mould said: “Rightmove was established in 2000 by what were the UK’s leading estate agents of the time and the launch of its website that year gave it first-mover advantage in the online arena that it has never relinquished, given its ongoing market share of 80 per cent-plus among UK property portals.
“The company brings together consumers and buyers (who can use the service for free) and property listings, where sellers pay to appear and generate a return by increasing the efficiency and targeting of their marketing spend.
Since then, the company has grown exponentially, generating revenue of £364.3m in 2023 and a pre-tax profit of £259.7m.
The property portal now controls around three-quarters of the UK online listings market and has used its dominance to hike fees by double-digits yearly.
Mould said this growth was driven by being first to the party and its focus on diversification over the years.
He said: “The company has not rested upon its laurels. The service has become increasingly sophisticated, and Rightmove has developed new revenue streams, such as commercial property, mortgage lead generation (in partnership with Nationwide) and third-party data to supplement its traditional strengths in estate agency, lettings and new homes.
“The model is very, very profitable and very, very cash generative. That cash flow permits the company to invest in its services, and buttress and entrench its competitive position as the market leader, and then return cash to its investors through dividends and buybacks.
“Sales stumbled briefly in 2009, as the housing market froze and mortgage applications plunged in the wake of the Great Financial Crisis and the only other down-year for sales was 2020, when the pandemic stopped a lot of people from moving house.
“RMV has managed that consistent sales growth even though mortgage approvals last month stood at just 62,000 in the UK, compared to 2006’s all-time high (and pre-crisis peak) of 126,000, to show how the online portal has made its presence felt in the overall estate agency market.”
Could the London Stock Exchange lose Rightmove?
The FTSE 100 company is a huge asset for the beleaguered London Stock Exchange, which is currently gearing up for its biggest regulatory shake-up in three decades.
Policymakers have pushed through a range of changes to offset a drop off in flotations over the past two years and turn around its reputation,
On Monday, however, Australian property giant REA Group, backed by Rupert Murdoch’s News Corp, announced it is mulling a £4.4bn takeover bid for Rightmove after spotting a “transformational opportunity” in combining the two online property sites.
The news sent Rightmove shares up nearly 25 per cent. REA suggested a cash offer and shares for 100 per cent of Rightmove.
If the London Stock Exchange lost Rightmove, it would add to the roster of companies that have fled the public markets over the past year.
Crown jewels like Darktrace and Royal Mail owner IDS have been picked off (or are in the process of being picked off) due to their low valuations.
Like them, Rightmove is currently a cheap buy, especially relative to its European peers, and this is the main reason why many analysts are unsurprised by REA’s bid.
“We’ve long argued that if you want to run the dominant property classifieds portal in the UK, the cheapest way to do it is to acquire Rightmove,” said Sean Kelly of Panmure Liberum, adding that the company could command a high takeover price.
Similarly, Peel Hunt analysts said: “Our belief – supported by the takeover interest – is that the shares look attractive, given the stability of its core classifieds business and the growth opportunities in other revenue streams, such as mortgages, commercial [real estate] and rental.”
However, the success and strong market position that has made Rightmove such an appealing target has led some to believe that REA’s interest could spark a bidding war.
Analysts have suggested that other suitors, such as cash-rich private equity firms, may be circling and are unlikely to back off without a fight. These firms could “breathe new life into Rightmove,” said AJ Bell’s Mould, helping it combat the threat posed by Costar’s UK entry through its £99m acquisition of On The Market in late 2023.
‘Risks ahead’
The gloomy housing market, combined with the Costar threat, has put investors off from bidding Rightmove’s stock higher this year.
Before the bid, Rightmove’s share price was flat year-to-date, and it’s well below its 2021 peak when the Covid-19 pandemic spooked house buyers into a race for space action.
Before REA’s announcement, the stock had underperformed the FTSE 100 over the past year.
And there are still “risks ahead,” according to the head of money markets at Hargreaves Lansdown, Susannah Streeter.
“The number of estate agents is falling as DIY alternatives grow in popularity, and more estate agents look set to be forced out of business,” she explained.
“This could hamper Rightmove’s ability to cross-sell premium advertising packages, and it’s still likely to be sensitive to the ebbs and flows of housing demand.”
However, the UK property market looks set to improve in 2025. Since the recent rate cut, market activity has already ramped up, with buyer inquiries to estate agents on Rightmove up 19 per cent year on year since the start of August and the number of sales agreed rising 16 per cent year on year.