Rightmove

When we look for a new home in the Netherlands, we visit Funda. In the UK, people go to Rightmove (RMV). RMV is UK’s largest online real estate portal and the first thing that comes to mind when people think of moving. The portal is home to more than 95% of all residential listings and attracts more than 2 billion page visits every year. This makes it the go-to portal for estate agents to advertise their properties and for consumers to find their new home, putting RMV in an enviable position.

RMV earns its revenue by charging estate agents and new homes developers a fixed fee per month to advertise on its platform. These fees are unrelated to the number of housing transactions and house prices, thereby shielding RMV from the cyclical fluctuations of the housing market. Case in point, while homebuilders and estate agencies face challenging environments with falling housing transactions, RMV recently even raised their profit expectations for the year.

RMV offers five subscription packages to real estate agents. Each step up in the subscription package tier grants the agent access to additional features, such as better advertising placements and lead generators, which helps sell more houses. Agents only have to sell three houses per year to cover the average cost of the RMV subscription. Considering that the average agent sells between 55-60 houses annually, this is not a tall order and reflects the compelling value proposition RMV offers to agents. Moreover, RMV offers the highest return on marketing spend for agents with lead conversions that are 4-5 times higher compared to its nearest competitor. This makes RMV the last channel for an agent to cut. Theoretically, it only makes sense for agents to leave RMV when they go out of business. The 95% annual retention rate supports this notion.

Valuation

We recently attended RMV’s investor day in London, where the company outlined its growth targets for the next five years. The company expects earnings growth to exceed 10% annually. The majority comes from the core business of providing advertising space and leads to agents. This is a function of the number of agencies on the platform times the average revenue per advertiser (ARPA). Since nearly all agents already subscribe to RMV, ARPA is the main growth driver. Historically, ARPA grew by 9-10% per year, driven by upgrading agents to higher tier packages, selling add-on products and price increases of 4% per year. The remainder comes from a couple of relatively new business lines, including a commercial real estate portal, a lead generator for mortgage brokers, data services, and digital tools that can help optimize an agent’s workflow. We believe RMV is well positioned to execute on these adjacent business lines since they already have the traffic on their platform, relationships with agents and a strong track record of launching new products and business lines.

We value RMV’s management strategy of avoiding venturing into unrelated businesses, a tendency observed in many companies. Instead, they recognize the strength of their business model and allocate all excess cash to shareholders through dividends and share repurchases. These annual capital returns represent a ~5% shareholder yield, this together with the expected growth results in a total expected annual return exceeding 15%. RMV trades at 22x the expected profit for 2024, which we find attractive given these growth prospects. Especially considering the company is debt free. Notably, RMV is the most profitable company in the Laaken portfolios with profit-before tax margins exceeding 70%.

Risks

The primary factor that makes RMV an indispensable platform for estate agents is the sheer amount of eyeballs it attracts. RMV captures more than 85% of time spent on UK property portals. Therefore, the biggest risk lies in losing this valuable traffic to a competing platform. While numerous attempts have been made, no competitor has successfully taken significant market share away from RMV. The primary challenge lies in winning over the consumer. RMV is synonymous with UK housing the same way Google is with search.  They have the best platform (based on traffic trends and >60k ratings), most listings, and best data on properties and homebuyers. Despite their dominant position, RMV doesn’t get complacent. They continue to invest to enhance the customer experience by maintaining their website & mobile app and by launching new products and features. The above gave us conviction to increase our position in RMV when the shares dropped briefly following the announcement of a competitor to take on RMV.

ESG

RMV reports extensively on their ESG initiatives. The company aims to achieve net zero emissions in its direct operations by 2030 and aligns its business with six UN Sustainable Development Goals. During the Covid-induced housing market shutdown, RMV demonstrated support for estate agents by waiving subscription fees for several months. Moreover, 87% of their employees called RMV a great place to work. Clarity.ai, our ESG analysis tool, acknowledges these factors, ranking RMV in the best 1% of its peer group regarding ESG risks.