The Rightmove (LSE:RMV) share price has been on an impressive run lately, hitting an all-time high of 735p today. UK’s largest online real estate portal has risen 25.7% in the market in the last six months. What is the reason for this surge and should I add Rightmove shares to my portfolio now? Let’s find out.
Thriving housing market
UK’s housing market is seeing a major increase in demand, fuelled by the pandemic. The first half of 2021 has been the busiest six-month period in the history of UK housing sales and Rightmove has gained significantly from this.
The average house price has risen 13.4% in the first half of 2021, the fastest rise since 2004. As a result, Rightmove’s share price has recovered well from the lows of the pandemic. The half-yearly (H1) 2021 report shows that the company performance is ahead of pre-pandemic H1 2019 levels. I see this as an encouraging sign that shows how well the company and the housing sector as a whole have bounced back.
Rightmove saw 140,000 more sales in the first half of 2021 but 85,000 fewer new listings. There is a huge deficit of houses up for sale currently and I think this is a direct result of working from home becoming a norm post-pandemic. A British Chambers of Commerce survey showed that 66% of UK businesses could continue a hybrid work from home/in-office strategy going forward. This means that homes will double up as office space for a large percentage of the population.
Strong financials
Rightmove’s H1 2021 financials looked very impressive to me. The overall revenue stood at £149.9m, a 58% increase from 2020. The operating profits of £114.9m is a 68% increase from 2020 and 5% higher than H1 2019. Underlying earnings per share of 11p in H1 2021 is up 8% from 2019’s 10.2p.
The company also boasts a large market share in the housing sector and recorded 1.7bn minutes per month spent on the website browsing listings (2020: 1.1bn; 2019 1.1bn). The average revenue per advertiser (ARPA) is up 63% to £1,163 per month, which is the highest ever ARPA recorded on the site. This makes Rightmove an attractive prospect for agents and owner-listers as well, in my opinion.
Rightmove share price concerns
The housing market is highly cyclical. Over the past decade, house prices have increased steadily. This makes me wary of a potential drop in housing prices which would reduce the number of houses being listed.
Also, stamp duty taxes resumed partially starting 1 July. As of now, only houses below £250,000 in sale value are exempt from stamp duty but this ends on 30 September. From October, the nation reverts back to the pre-pandemic stamp tax brackets. This could potentially lower sales figures.
Despite this, I think the 13.4% rise in average housing prices in the year to June is indicative of the current demand that analysts predict will continue into 2022. Also, I see a permanent change in the housing markets thanks to the renewed importance of living spaces post-pandemic. Rightmove’s share price could benefit from this. This is why it was on my watchlist in July and its strong run cements its position as a good long-term buy for my portfolio.
