If you are looking to buy a house in the UK, it is more than likely the first place you will look is Rightmove (LSE:RMV). The company has more than an 80% share in the property portal sector according to its annual report. The Chancellor recently announced a stamp duty holiday to help boost the housing market. Surely this can only be good news for the Rightmove share price?
Rightmove share price
The Rightmove share price has fallen more than 15% since the start of the calendar year. However, the share price has been more resilient than most in the FTSE 100, which has lost nearly 19% of its value. This resilience is due to its dominant market share and excellent balance sheet.
Rightmove is one of the most profitable companies in the FTSE 100. Its underlying operating profit is a whopping 75% according to its annual report. Nearly 70% of this profit was returned to shareholders via dividends or share buy backs last year.
Rightmove’s revenues are generated by charging estate agents to access its property portal. The housing market was forced to close for seven weeks due to the coronavirus. In response, Rightmove discounted its fees by 75% between April and July to help support estate agents. Further discounts will be in effect until September.
To help preserve the balance sheet Rightmove has suspended its interim dividend and introduced cost cutting measures. I believe the short-term revenue slump and future loss of profit is already included in the Rightmove share price.
Stamp duty holiday
The Chancellor’s stamp duty holiday was introduced to support the housing market. Help is needed as economic uncertainty and high unemployment are not good conditions for be buying a house.
Early indications are that this stimulus could work in the short term. Estate agents have been inundated with new vendors looking to capitalise on the stamp duty holiday. On 8 July Rightmove had over 8.5m visits to its website, one of its busiest ever days.
Short-term optimism regarding the housing market could help the Rightmove share price bounce in the short term.
The number of traditional estate agents is declining. They are closing due to high office rents, fees, and increased online competition, such as Purple Bricks. Online competition is a long-term risk to the Rightmove share price as traditional estate agents are its biggest revenue producer.
There is also increased competition in the property portal market. On the Market is a credible competitor, which is majority owned by estate agents. Its unique selling point is that estate agents are offered equity in the business in return for portal listing exclusivity.
Increased competition and reduced revenue from estate agents is a long-term concern. In order to maintain its market share, permanently reduced fees may become necessary. The stamp duty holiday is excellent news for estate agents, which is excellent news for Rightmove. However, despite the short-term boost, the long-term outlook is mixed. I do not foresee the Rightmove share price surpassing its previous highs any time soon.
The author does not own shares in Rightmove. The Motley Fool UK has recommended Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.