Rightmove (LSE:RMV) and Auto Trader (LSE:AUTO) were among the worst-performing stocks on the FTSE 100 on Tuesday (3 February). This compounded poor performance over the past couple of months. In fact, over the past six months, Rightmove is down 45% and Auto Trader 40%.
So, what’s going on?
It’s AI again
Auto Trader has experienced some pushback on its Deal Builder product and reported cancelations and downgrades from some of its members. However, the main issue for both companies is AI.
Both have been investing heavily in AI, and continue to do so, but we’re in a position where the market is looking for AI winners and AI losers.
For many, it’s hard to look beyond the likes of ChatGPT, Gemini and Anthropic as the winners.
That creates a difficult backdrop for vertical marketplaces.
While Auto Trader and Rightmove are deploying AI in pricing tools, search, and lead qualification, these are incremental improvements rather than category-defining breakthroughs. The risk is that such investments are perceived as defensive, or worse, mere table stakes.
And a press release from Anthropic about its legal plugin — it released 11 new plugins on 30 January — was the straw that broke the camel’s back to some extent.
The press release highlighted that the legal plugin can undertake a lot of the grunt work such as reviewing legal documents and NDAs. But the implications are wider than that.
It’s about AI’s increasing capabilities. In the classifieds sector, AI will be able to source unstructured data straight from estate agents or car dealers. And that will represents a profound change.
It creates a new proposition for agents, dealers, and potential car/home buyers. In this context, Auto Trader may find itself in direct competition with Anthropic, for example. And while Auto Trader may contend it’s good value, Anthropic’s search could be a fraction of the cost to dealers.
The positive spin
Buyers are notoriously slow to change behaviour, particularly in high-value, infrequent transactions like cars or homes.
That inertia continues to work in favour of incumbents. Despite the noise around AI disruption, consumers still default to the platforms they trust, understand, and habitually use.
This is particularly the case for homebuyers. You really want to see everything on the market before buying a new home. When it comes to cars, you may already know you want a white Tesla.
In that case, an AI chatbot may be quite efficient at finding all the white Teslas on the market. It can sift through data from independent car dealers and present them too you.
However, if you’re undecided and you want to browse the options, the marketplace interface may be preferable.
Sadly, I have no crystal ball. But the valuations are worth looking at.
Rightmove is now trading around 14.2 times forward earnings despite having a phenomenal 66% operating margin. Auto Trader is cheaper still around 13 times forward earning with a 63% margin.
For now, both companies are growing earnings, but it’ll be interesting to see how they evolve. The stocks, I believe, are still worth considering, but come with plenty of risk attached.
