Having made the decision to begin investing in property portal Rightmove (LSE: RMV) back in April, I’ve been encouraged by the rebound in the share price so far.
That said, the reaction to today’s trading update isn’t quite so great. Why is this? And am I worried?
Rightmove in demand
First, the good news.
Today, the £5bn cap company said that demand for its services had been strong. Indeed, its platform had seen 10 of its busiest days ever since 13 May (when the government permitted agents and developers to reopen). Weekly email updates are receiving an average of 800,000 views and the number of properties being listed is also rising — up “over 10%” in the last week compared to this time last year.
In addition to this, the FTSE 100 constituent said that house sales in England were 10% higher than they were one year ago. Of course, some of this may be down to deals finally completing after being on hold during lockdown.
So, why are the shares down?
There are a few likely reasons.
First, Rightmove did report a 3.8% fall in its membership base (to just over 19,000) since the end of 2019. It attributed this partly to agencies having cash flow problems as a result of the pandemic, although ‘traditional’ agents seemed to be weathering the coronavirus storm so far.
Second, Rightmove announced today that it would continue to give discounts to agencies beyond the 75% offered from April to July. A 60% reduction will be given to customers in England in August, falling to 40% in September. Those in Wales, whose market reopened yesterday, will still get a 75% discount for August and 60% for September. Agents in Scotland are getting the same terms. Its market opens next Monday.
While this should appease customers, it’s not ideal for Rightmove’s top line. Extending this support will likely hit revenue by £17m-£20m. This is on top of the £65m-£75m impact already predicted.
Third, the company’s ongoing unwillingness to provide guidance on its outlook for profits, while prudent, may also have frustrated some.
This decision, however, makes complete sense to me. It’s early days in terms of the recovery and we could still see markets fall should we get a second wave or the economic damage is worse than thought. House prices are already expected to fall 5% this year.
Rightmove’s shares are down by 3.5% as I type.
Not that this concerns me. Rightmove remains the clear leader in what it does with an 85% market share and, according to the company, over 50% more listings in the UK than any other source. That’s a powerful advantage that competitors have hitherto failed to erode.
Moreover, it seems the company is doing all it can to mitigate the impact of coronavirus on its finances. Despite having net cash on its balance sheet, management has taken salary cuts and a third of employees were furloughed back in April.
And even if we do get a second wave, Rightmove will be prepared. Its tool to help agents provide online viewing videos has already proved popular, as have advice webinars for both agents and house hunters.
Taking all the above into account, I’m happy to continue holding this quality business. I’ll even consider adding to my position should today’s fall mark the beginning of another period of volatility for the share price.