The FTSE 100 has lost a number of high-quality companies in recent years. And another might be on the way out.
Some have been acquired and others have moved their listings abroad. But I’m looking at something quite different.
Reshuffle
The FTSE 100 is meant to be the largest UK-listed companies by market value. But that can change as share prices move.
To account for this, the index updates every three months. And the next reshuffle is set to be very interesting.
Two companies have made it into the top 90 stocks. These are Harbour Energy and Ithaca Energy.
If they stay there until the June reshuffle, they’ll be included in the FTSE 100 automatically. And two firms will have to make way.
As things stand, one of the names set to be dropped is Berkeley Group Holdings. But it’s the other one that’s catching my eye.
Rightmove
Rightmove (LSE:RMV) is currently in danger. Its £3.4bn market cap is lower than quite a few FTSE 250 names.
There’s a lot to like about the business. Its margins are huge, it has no debt, and it dominates the UK property search market.
Investors, however, don’t seem to care. They’re concerned about artificial intelligence and the threat of disruption.
Rightmove’s problem is that there’s not much it can say or do to ease these worries. Its latest results, for example, were good.
The trouble is, this fits with the AI disruption narrative. Things are going to be absolutely fine – until they aren’t.
Disruption?
ChatGPT can search estate agent websites to find four-bedroom houses in Oxford. But I don’t think that problem is the main issue even though Rightmove’s key strength isn’t proprietary data. What sets it apart from competitors is its network effect.
Buyers start their searches there because it offers everything they need. So why would they stop doing this?
One answer is if agents stop listing on Rightmove. But that’s a big risk as long as it’s the first place buyers look.
The still-FTSE-100-for-now firm isn’t – as the saying goes – a potted plant (that is, not a passive observer). Staying on top has it has done for years in this space is harder than it looks.
Costs
Despite this, Rightmove shares are clearly falling for a reason. AI is set to have a real impact on its business.
Building out its own AI capacities is going to cost money. And that’s set to weigh on margins for the next few years. As I see it, that’s the real risk for investors. The firm expects these effects to be temporary, but what if they’re not?
Huge margins are a big part of Rightmove’s attraction so this is a threat to take seriously. Margin pressure, in my view, is the big concern with Rightmove.
Opportunity?
Rightmove isn’t my top tech stock right now. I’m looking at names with better proprietary data or regulatory protection.
That, however, might be about to change. The stock is down around 45% from its highs and if it drops out of the FTSE 100, that could create even more selling pressure.
If that causes the share price to fall further, it could get much more attractive to me. I’ll be watching closely.
