Is Rightmove a Takeover Target?

An article appeared recently from Estate Agent Today speculating that rightmove.co.uk could be ripe for a takeover bid. The article discusses a report by an investment broker Teathers, who is rating the stock as a “buy” and is tipping the purchase of shares in Rightmove. Given the state of the market, the position and historic performance of rightmove, and the depressed state of its share price, it appears that Rightmove could be a good acquisition target. Here are our thoughts.

The Estate Agent Today article said that in spite of speculation of customer losses and intense competition for eyeballs, Rightmove continues to lead the UK market with more agents and more consumer traffic than any other site.

This is obviously true and any reasonable outside-in analysis shows that they have more agents, more listings, and more eyeballs than any other site. These market leading positions are hard to achieve and even harder to lose. When you look around the world, whether it be Australia, the US, France or Germany, the incumbent is the clear market leader and has been for nearly a decade. In the intervening times, there have been continuous attempts to knock them off, yet no one seems to have made even the slightest dent in their leadership. The only thing that is affecting these businesses is the underlying economy leading to agents closing their doors or reducing their marketing spends. However, this phenomenon doesn’t just affect the market leader, but all players in the market.

In following the UK market, you often hear noise that Rightmove is too expensive and that up to 75% of agents are going to leave them. This is probably just noise. No matter where you are in the world, the most important output from advertising for any agent is leads – and plenty of them. Therefore, agents should advertise where the leads are coming from and in the UK, that is Rightmove. There are two reasons why an agent wouldn’t advertise on Rightmove.

The first is that they have gone out of business. Now in the UK, where historically being an agent had virtually no barriers, some agents are leaving the market. There is speculation that 20 – 30% of agents will leave the market during this downturn (and a good chunk of these will probably return when the market starts to recover).

The second reason an agent may not advertise on Rightmove is they perceive the fees as being too high. However, £300 – £400 per month to advertise all your listings is not that expensive in relation to other forms of advertising – especially print. In addition, these costs are significantly cheaper than many of the other costs in running in a business – i.e. people. Therefore, when push comes to shove, the majority of rational agents will continue to pay to use the sites that are delivering them leads – in this case Rightmove. The agents that leave Rightmove for smaller sites such as Findaproperty or Propertyfinder are either making an irrational decision, are under enormous financial strain and probably heading out of business shortly or are in those few locations where Rightmove is not the local market leader.
What this means, is that in the short term, rightmove revenues from its core business may be under a little pressure. However, any reduction in revenue from residential subscriptions is likely to be offset by revenues from other listing areas such rental and holiday lets subscriptions. There is also the chance for them to generate more revenues through an increase in display advertising for non-real estate advertisers.

Also, it is probably fair to assume that the cost reductions announced last year are having an impact and they will be able to at least maintain if not grow their EBITDA.

Therefore, the real question is whether rightmove shares are currently fairly priced at the moment. Like most stocks around the world, their share price has been hit hard. In the last 12 months, the shares have tumbled 65% from a high of £5.51 to £1.90. Based on the 12 months to 30 June 2008 (last published results were for the half year to June 30), the business is trading at 6.6x EBITDA and 10.3x NPAT. This is similar to SeLoger in France and LoopNet in the US.

In thinking about a share price, you need to think about the current return to shareholders and the potential for growth in the business. The business is currently generating good returns and should continue to generate strong returns. As the UK market recovers from the current turmoil, Rightmove is clearly the best placed business to capture the lion’s share of the value. New agents entering the market will most likely advertise with Rightmove. They still have room for yield increase – especially through the continued sale of premium products. None of this will happen overnight. Therefore, for the long term Rightmove shares are a good buy. If I were a traditional media player with cash reserves, I would look very closely at acquiring Rightmove. It is unlikely to get any cheaper and more likely to deliver strong long-term returns to the acquirer.

No wonder the Teathers reports speculates that both the Guardian and New International could be interested in acquiring Rightmove.

1. Are Things Bad for Rightmove?

   Three interesting pieces of information have come to light in the last couple of weeks concerning rightmove.co.uk. Firstly, rightmove.co.uk reported that it lost 1,300 agents in the first have of the year but offset this loss by signing up 800 new agents. Secondly, a survey conducted by Estate Agency Today said 75% of agents would not renew with rightmove.co.uk and would move to the free sites. Finally, an article in the Telegraph reveals that Rightmove is one of the top 10 shorted stocks with more than GBP 50m staked on the shares continuing to slide. The question is ... does this really mean that Rightmove is in trouble or will they ride through the storm and profitably remain in front? Read on for more ... ...

2. rightmove.co.uk Takeover Bid Rumours

   The property press is awash with rumours of a rightmove.co.uk takeover bid....

3. The Real Challenge for rightmove.co.uk

   You just have to spend 10 - 20 min surfing the UK property blog sites to see comments like this "The agents in our area have started talking about withdrawing from rightmove as a whole and going to the free sites, such as globrix, mouseprice, nestoria etc, as rightmove seem to be unwilling to acknowledge the climate and drop their prices. The only way we can encourage rightmove to drop their prices is to work together." On the surface this doesnt look good for rightmove.co.uk. The problem is exacerbated in January when a reported 50 percent of rightmove.co.uk's agents have their annual contracts come up or renewal. What is the likely impact and what should rightmove.co.uk do?...

4. Connells Sells 18% Stake in rightmove

   It was announced today that Connells has sold 18% or 21m shares in rightmove for 155 pence / share. This announcement comes a day after Connells extended a long standing marketing agreement with rightmove that sees it advertising on the site until 2012....

5. How Zoopla Helps Rightmove and Did DMGT Get it Wrong?

   Over the last month Zoopla has clearly signalled to the market its intent to be a major player in the UK property portal market. It has snapped up Thinkproperty and Propertyfinder to clearly position itself in the top three UK portal businesses behind market leader Rightmove and DMGT’s The Digital Property Group. In the process there have been some winners and some losers. However, it is Rightmove who is likely to gain the most from this move while questions have to be asked if DMGT truly missed a game changing opportunity....