If companies were judged by how much wealth each worker creates, Rightmove would be one of the world’s most successful enterprises (Simon Duke writes). The property website has a market capitalisation of £5.5 billion — an average of more than £10 million for each of its 538 employees. Apple and Alphabet don’t come close. The iPhone maker is valued at $8.8 billion for each of its 137,000 workers, while the owner of Google and YouTube is worth $8 million per employee.
This benchmark, of course, is arbitrary. It doesn’t tell us a great deal about the relative merits of these technology companies, nor how they may fare in the future.
However, it does illustrate the power of the internet portal and the winner-takes-most dynamics of the digital economy. Once a marketplace establishes dominance in a field, it benefits from strong network effects. As Rightmove, Autotrader and others have shown, incumbents don’t have to invest large sums to maintain their lead. These muscular operations enjoy outsized profit margins and are among the most highly rated companies on the stock market.
Last week’s results from Rightmove exemplify the attractions of portals. Despite the Brexit paralysis in the property sector, the company increased its revenues by 8 per cent to £289 million, with pre-tax profits rising to £214 million.
Scratch beneath the surface, though, and a different picture emerges. The number of estate agents and housebuilders using its service fell last year. As analysts at Citigroup noted, Rightmove is “priced for perfection”, so it was no surprise to see its shares fall 6½p to 625½p yesterday on the back of the full-year numbers.
The slump in advertisers on the platform begs an even more fundamental question. For years, Rightmove has managed to milk clients for steadily greater sums every month, but not by enough to cause a revolt. With the average monthly bill for an estate agent’s branch now approaching £1,100, might their patience be about to snap?
Rightmove was established in 2000 by four estate agency chains, Countrywide, Connells, Halifax and Royal & Sun Alliance, initially to list their own properties. Two years later, it allowed other agents on to the platform and it was listed in 2006. Today it has 75 per cent of the UK property search market, according to Comscore, and its customers include estate agents, lettings agents, new homes developers and landlords. It charges agents a set fee to list their entire inventory on the site. Rightmove earned £209 million from these commissions last year, 72 per cent of turnover. The remainder comes from housebuilders and data and software services.
Rightmove won the battle of the portals by making it easier for buyers to find a new home. For agents, it offered more leads at a lower price than their local newspaper. But the symbiotic relationship is in danger of crumbling. In a blistering research note from December, Giles Thorne, an analyst at Jefferies, said that Rightmove’s “gravitational pull” on estate agents had weakened as its price rises had “long since outstripped any increased functionality of the platform”. He argued that the game could be up for Rightmove if agents take collective action to free themselves from the portal’s “psychological chokehold”.
That will be easier said than done. Nevertheless, competition is increasing and agents have other options to list their properties. At the present level, its shares are trading at 30 times this year’s estimated earnings. Other portals offer more attractive valuations and are growing more rapidly.
Advice Avoid
Why Rightmove will struggle to raise prices by enough to merit its valuation. Other portals are cheaper and will grow more quickly
Robert Walters
The coronavirus outbreak has hit Robert Walters just as the recruiter’s prospects were beginning to brighten (Ben Martin writes).
The London-listed company is a leading professional recruitment business employing more than 4,000 staff in 31 countries. It is led by its eponymous founder, who set it up 35 years ago and remains its chief executive.
Last year was tough for the recruiter. There was the trade war between the United States and China, pro-democracy riots in Hong Kong, French gilets jaunes protests and the fractious political environment in Britain — and its annual results yesterday bore the scars of that turbulence. Pre-tax profit fell to £47.4 million from £49.1 million on revenues that slipped by 1 per cent to £1.22 billion.
The headhunter said that it had been “hit hard throughout the year” by the uncertainty on home soil caused by Brexit and the general election, which knocked confidence among both clients and candidates. Net fee income from the UK declined by 9 per cent to £98.4 million and operating profits were down 6 per cent at £11.7 million, the only region were both measures fell.
The headwinds were abating by the turn of the year. The protests in France had died down, global trade tensions had started to cool and the civil unrest in Hong Kong showed signs of easing. Yet the coronavirus has overshadowed those green shoots. Robert Walters’ warned that the outbreak was “likely to negatively impact full-year profit expectations”, sending its shares down 30p, or 5.6 per cent, to 500p.
Its business in Asia, which accounted for 41 per cent of net fee income last year, has been hit by the epidemic, particularly the company’s operations in China, the epicentre of the outbreak. Alan Bannatyne, Walters’ finance chief, said that “we virtually had no face-to-face client and candidate interviews in China in February”. This is a blow, given that it gets paid for permanent placements only once offers are made after final interviews.
Bearing in mind that the impact of coronavirus remains unknown, Robert Walters is a “sell” for now.
Advice Sell
Why The coronavirus outbreak clouds its prospects
