A new report on Rightmove has advised investors of ‘signs of cracks’.
Analysts at Berenberg bank have reiterated their ‘sell’ rating.
The Berenberg report comes after Rightmove’s half-year results were published last week, showing 10% rises in profits and revenues.
However, says Berenberg, “the headline numbers mask what are starting to be worrying underlying trends.
“We had noted at the full-year results in March that a business model so reliant on increasing prices is unsustainable – eventually agents will be forced to either leave the platform or close down. This is exactly what has happened in H1 2019.”
It says that 3% of agents’ branches have parted company with Rightmove in the first six months of this year, with the site itself expecting the trend to continue.
Berenberg says: “Rightmove will need to push through larger price increases on those that remain.”
But, it continues: “In our view, there are structural and competitive concerns for Rightmove, and agents will continue to vote with the feet whether voluntarily or through going out of business.”
Berenberg says it is “not a crazy assumption” to make that the agents who stay on Rightmove will be less receptive than usual to price increases.
Agents are suffering from “numerous” headwinds such as pressure on commission rates, over-supply of agents, and the lettings fee ban.
Berenberg says that Rightmove also now has stronger competitors in both Zoopla and OnTheMarket.
Zoopla now has “materially more firepower at its disposal” after its acquisition by Silver Lake, while OTM seems to represent the whole of the property market while charging far less than Rightmove.
Berenberg believes Rightmove’s valuation “does not reflect the difficulties that its estate and letting agents are experiencing and the impact this could have on Rightmove’s near and medium term growth”.
Berenberg repeated its price target of 420p for Rightmove’s shares, which yesterday closed at 528p.