“Marketing spend/launch costs are holding back profitability, but we expect the company to be profitable next year and to generate earnings before interest, tax, depreciation and amortisation of £190 million by 2022,” JPM said.
In contrast, the bank warned that a rising share of online agents will accelerate pressure on commission rates for traditional agents, amplifying tough market conditions post Brexit. In this environment, the future for Rightmove looks challenging.
“We believe the property agent market faces significant changes over the next few years with the rise of new disrupters in the form of online agents,” JPM said.
“These players are benefiting from low fixed costs (as property costs are not incurred in the way a high street agent does and labour costs are more variable as agents are self-employed) which provides strong cost advantages. As a result, online agents charge a significantly lower fee and are rapidly taking market share.”
JPM believes the average fee for online agents is about 70% lower than for traditional agents.
It said the success of online agents is reducing the cost base and driving productivity in the estate agency industry.
It added that it appreciates Rightmove is not an estate agent and that property sellers will look to cut costs elsewhere before they reduce their presence on the leading property listings site.
Despite this, it sees little scope for meaningful increases in average revenue per agent.
JPM trimmed its target price for Rightmove from 4,183p to 4,168p – 4.4% lower than its share price of 4,358p on Tuesday.
Recent years have seen a plethora of online estate agents entering the market.
The second largest is HouseSimple.com, which recently secured £20 million in growth capital as part of its stated goal to “challenge Purplebricks as the UK’s leading online estate agency”.
Other online agents include Settled, MyOnlineEstateAgent, TurtleHomes, Hatched, Door Step Agents, We Are Pad, SellMyHome, YOPA, Urban, Gordon’s, EstatesDirect, Upad, MovUno and Sell We Online.
DealMakerz is surprised to see such a negative outlook for Rightmove, which comes just months after the portal announced bumper results that were described as “defying gravity”.
The results suggested traditional estate agency customers are still choosing to spend money in an increasingly competitive environment – a great vote of confidence in the platform, which is still the most profitable property portal in the world.
But the downgrade adds further weight to the argument that traditional agents need to adapt their business models fast if they’re to stay afloat in a tough market.