Rightmove (LSE:RMV) shares fell on Friday despite some fairly positive earnings data. The stock dropped 2.5% in morning trading, meaning the firm is now down 18% over 12 months.
The housing market in the UK may not be particularly strong, but Rightmove isn’t directly impacted by fluctuations in house prices. Instead, the company earns money from monthly subscription fees paid by customers to advertise all of their properties on the site and other advertising income.
So, is this a stock investors should be pilling into? It’s certainly something I’m considering.
Resilient traffic
Rightmove runs the UK’s largest online real estate property portal. But amid one of the most challenging periods for the housing market in over a decade, Rightmove posted a rise in full-year operating profit.
The company said it has seen “resilient traffic despite a significantly less frenetic property market than 2021″.
Operating profit rose 7% to £241.3m, with revenues 9% higher at £332.6m. Earnings per share rose 9% to 23.8p — suggesting a price-to-earnings of 22.9 — and the total dividend for the year was lifted by 9% to 8.5p a share. The yield still sits below 2%.
People spent a collective total of 16.3bn minutes on the platform during the year. That was down from 18.3bn in 2021 when the housing market was in overdrive, but 34% higher than the pre-pandemic record of 2019.
Clients growth strong
There was positive news on the revenue generation side too. The platform owner said that customers continued to upgrade their packages and to increase their use of digital products.
This was reflected in revenue per advertiser, which increased 11% to £1,314 per month. This represented the second-highest year ever for absolute ARPA (average revenue per advertiser) growth.
“While we remain alert to the ongoing economic uncertainty, Rightmove is not materially impacted by the property market cycle, other than in the most extreme circumstances”, the company said in a statement.
What about the future?
In the near term, there are several positives to look at. Firstly, the firm says it’s not materially impacted by cycles in the property market, however it is the case that interest in the sector determines site visits. While housing sales are slowing, the rental market is booming in many parts of the country. And, of course, Rightmove also offers rental advertising.
The firm also said that strong ARPA growth in the second half of 2022 gives increased confidence for further ARPA growth in 2023. Rightmove expects customer numbers to follow a similar pattern to that of the second half of 2022.
In general, the fundamentals are very positive. The forecast is for an underlying operating margin around 73% this year — that’s huge. It has a strong balance sheet, impressive cash generation metrics, and a buyback programme that should boost the share price in the coming years.
So, would I buy Rightmove stock? The metrics are very impressive, but I’m not sure how the firm delivers on that expensive price-to-earnings ratio. Moreover, I’m not sure where that growth is coming from, because the company already dominates the space in which it operates.
I’m going to keep an eye on this one, but I’m not buying now.
