ii view: Rightmove extends help to estate agents

Fee reductions will result in lost revenue, but home hunting has been strong since agencies reopened. 

Trading update from 1 January to 31 May 2020

• Covid-19 fee reductions resulting in a drop in revenues of up to £95 million
• A 3.8% fall in customer memberships to 19,054 since the end of 2019
• Previously cancelled the 4.4p per share final 2019 dividend payment

Guidance:

• Offering no full-year financial estimates

Chief executive Peter Brooks-Johnson said:

"In these unprecedented times, I continue to be impressed by the ingenuity of our customers to continue operating in difficult circumstances and I thank them for the wealth of ideas which have inspired our recent innovations. I’m encouraged by the strong bounce back in home hunter demand since 13 May as England starts to move again and we look forward to welcoming our Scottish and Welsh customers back to the market. Rightmove is committed to continuing to innovate to make home moving easier and to play our part in supporting our customers’ long-term success.”

ii round-up:

Fee discounts given to Rightmove's (LSE:RMV) estate agents and new home developer customers during and beyond the Covid-19 shutdowns are expected to result in a fall in revenues of up to £95 million.

New discounts announced today extend the hit to revenue by a possible £20 million, adding to the previously forecast loss of up to £75 million. 

Over 600 agencies and more than 100 new home developers have cancelled or not renewed their Rightmove memberships since the start of the year, due to constrained cash flow largely because of the coronavirus pandemic. 

Rightmove shares fell by more than 3% in early UK stock market trading having fallen by around 10% year-to-date. With car dealerships also closed for weeks under the pandemic, shares of Auto Trader (LSE:AUTO) are down by a similar amount in 2020. 

Rightmove previously gave agencies and developers a 75% fee discount between April and July to help see them through the pandemic. Today it extended its help to England based customers announcing a 60% August fee discount, and a 40% cut in September. Under government guidance, agencies reopened on 13 May.

In Wales, a reopening occurred on 22 June and for Scotland is due to begin on 29 June. As such, customers here will receive a 75% fee reduction in August and 60% in September. 

Home hunter demand since the reopening in England on 13 May has been strong. Ten of its busiest days for website traffic have subsequently been seen. 

Measures to conserve cash under the pandemic have included furloughing around a third of its staff and temporary director pay cuts. In March, it cancelled the 4.4p per share 2019 final dividend payment conserving £38.3 million. 

ii view:

Rightmove appears to retain first mover advantage. The popularity of its website is proving difficult for the competition to catch let alone overtake. Advertising for estate agents has moved increasingly online. Sales of its advertising subscription packages and not housing sale numbers are what is important to Rightmove.

Predictable cash flows reflect the subscription nature of the business coupled with low working capital requirements. However, reducing high street branches through either closure or merger potentially reduces advertising fees going forward. The rise of online estate agents such as Purplebricks (LSE:PURP) also generates low cost online competition to the traditional branch networks. 

Now Covid-19 has caused a complete shutdown of the property market for weeks. Fee reductions to assist its cashflow hit customers will impact both revenues and earnings. 

For investors, the group’s market leading position makes it impossible to overlook. According to Rightmove, it has over 50% more available stock listed for sale in the UK than anywhere else. Strength in the housing market following the reopening in England offers reassurance. But the degree of uncertainty going forward given the overhang of the pandemic is sizeable.  Management is as yet unable to offer financial estimates for the year ahead. That market leading position and resumption of business will  keep shareholders happy, although new investors will have to take a view on a sustained recovery in home hunting over the summer and beyond.

Positives: 

• Strong market position
• Ten of its busiest days ever since 13 May

Negatives:

• Estate agent branch numbers under pressure
• Dividend payment suspended

The average rating of stock market analysts:

Hold