The first half of 2024 has been decent for the UK’s largest online property platform. And the Rightmove (LSE:RMV) share price is up 3% in response to the latest update.
Revenues climbed 7% and earnings per share increased 2%. But when it comes to whether or not to buy the stock, I think investors should listen to Warren Buffett.
Earnings
Revenue growth was driven by higher average revenue per advertiser. But margins tightened, even after accounting for acquisition costs during the period.
As Buffett points out though, someone considering owning a stock for 10, 20, or 30 years is going to see a lot of earnings reports. And the ones that matter are the ones still to come.
If I buy the stock and hold it until 2050, it’s unlikely I’ll care much about a six-month period in 2024. But how the company does over the next 100 quarters will be crucial.
Fortunately, Rightmove looks to me like a classic case where the company’s long-term prospects are much clearer than the short-term outlook. And I think the future looks positive.
The long-term view
Rightmove accounts for over 80% of the UK’s online property search market. That means anyone looking to list a property more than likely has to go through its portal.
Revenue growth is therefore unlikely to come from increasing market share. Realistically, it’s going to be the result of increasing prices, or the market as a whole growing.
Investors need to think about Rightmove’s ability to maintain its huge market share. But as long as it can do this, the company should have significant pricing power.
Equally, there’s room for optimism about the UK property market growing. The government’s aim to streamline the planning process and increase construction output could be a big boost.
Risks and uncertainty
I think Rightmove’s one of the FTSE 100’s best businesses with some extremely impressive unit economics. But even the most attractive stocks come with risks.
One is the possibility of a competitor disrupting its market position. US peer CoStar‘s looking to do this by expanding into the UK.
Another is the possibility of the UK property market not growing as expected. Building 1.5m new homes will need the current output to double, which is far from straightforward.
At a price-to-earnings (P/E) ratio of 23, the stock comes with an expectation of long-term growth. If this doesn’t come through, an investment might turn out badly.
Should I buy the stock?
I think Rightmove shares could turn out to be a great investment. But that isn’t because of anything that’s happened over the last three months – I’m interested in the long term.
The stock isn’t cheap, but there are clear avenues for growth ahead in terms of pricing power and a growing market. That puts it on my list of companies to consider adding to my portfolio.
