Rightmove Delivers Great Results As the Business Slows

The Rightmove full year 2008 results show a year on year increase in revenues of 30.6% from £56.7m to £74m. In addition, they also increased profit by 36.8% from £18.6m to £25.5m. The underlying profit margin increased slightly from 33% to 34%. On the surface, these look like fantastic results, especially given the underlying market conditions. However closer analysis shows that the business will face some more challenging times in during 2009.

Rightmove delivered £74m in revenues in 2008. However, when break this into performance in the 1st half-year and 2nd half-year, revenues actually decreased in the second half of the year by 4.2%. Further analysis shows that while Average Revenue per Agent us up year on year, it actually decreased for the first time between June and December from £317 in June 08 to £307 in December 08.

Finally, the business suffered a significant decrease in the number of estate agent advertisers in the second half of the year. At the end of June, they had around 12,000 estate agents and this decreased to around 9,800 at the end of December. Counter balancing that was an increase in the number of lettings agents from 2,700 in June to around 3,100 in December.

Offsetting the decrease in revenues over the last 6 months has been a reduction in costs. While over the course of the year, costs increased by 14.1% to £34.6m, they actually reduced when looking at the 1st half year compared to the 2nd half year. The costs reduced over the second half year by 4.8% from £17.7m to £16.9 million. This is a direct result of the reduction in head count announced last year.

Finally, the overall half-year on half-year profitability marginally grew from £12.6m to £12.9m.
The question is now what does 2009 hold for Rightmove. It will be difficult to maintain the historic levels of revenue growth in fact it will be challenging for management to achieve much growth at all. Increases in average revenue per agent will be tricky and most likely to be driven by greater adoption of the Rightmove Choice products rather than the historic increases in price. There will be continued pricing pressure as findaproperty.com and propertyfinder.com continue to discount heavily. We therefore expect no more than a modest growth in 2009 of around 10% leading to revenue of around £80m.

Margins should be maintained through continued cost cutting exercises. The full benefits of the 25% reduction in staff should be captured in 2009. However, much of these cost savings are likely to be spent on more aggressive marketing as the business continues to remind the public that they are the best place to search for property in the UK market.

The operational future for Rightmove is clear. However, the more interesting question is what the business will do strategically. The UK market is ripe for consolidation and Rightmove is in the best position to lead the charge. They should be utilising their cash reserves and cash generating capability to acquire one or more of the existing players in the market. The most obvious targets are propertyfinder.com and findaproperty.com. Either of these two businesses would help protect the current strong market position of Rightmove. In an article last year we discussed why it makes sense for Rightmove to acquire Propertyfinder.

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