Rightmove ‘may have to slash fees’ says pundit

| Rosalind Renshaw

Rightmove might have to lower its prices, an analyst has said.

Investment website The Motley Fool has made the prediction following the decision of Rightmove chairman Scott Forbes to sell off half his shares in the company.

It says that Rightmove’s shares could crash.

The Motley Fool has also warned that Foxtons’ shares could be “highly susceptible”.

In a move that was always going to raise City eyebrows, Forbes reportedly wanted to raise funds for a house purchase in Kensington.

However, he could have made more money from his shares if he had sold them back in January (when the house he is apparently buying would probably also have cost a lot less).

The sale of Rightmove shares, netting Forbes £7m, had the almost inevitable effect of making the company’s shares fall further.

Cue for the City analysts to move in and take a closer look.

And this is what The Motley Fool makes of it.

In an article headed “Unsupportable profits?” writer Roland Head says: “Rightmove reported an underlying operating margin of 74.3% in 2013. That’s an incredible level of profitability – Rightmove is basically charging through the nose for a service that costs very little to supply.

“The reason Rightmove can do this is that it has the lion’s share of the market; if your property isn’t listed on Rightmove, many people won’t see it. However, things can change fast online, and exceptionally high profit margins such as these are rarely sustainable in the long term.”

The article goes on to query whether Zoopla and Rightmove’s “cosy stranglehold” on the market can continue in the light of the launch of Agents’ Mutual in January.

Agents’ Mutual, says the piece, has commitments from agents representing 12% of the listings market. Not huge perhaps – but could it be enough to “force Rightmove to cut its prices”, as the article suggests?

In a separate article on the site, Rupert Hargreaves also expresses concerns about the Rightmove share price. He also points out that Foxtons’ shares are currently trading at 21 times valuation.

“If London’s property market takes a turn for the worst, Foxtons’ management is going to have to work hard to convince the market that the company is worth this lofty valuation,” warns Hargreaves.

Separately, Eye was intrigued by a comment from one of our readers, Nick Churton, of the Mayfair Office.

In the wake of the recent elections, Churton said: “The established parties – hitherto secure in a comfortable two-party system – are now worried about a significant number of their key supporters ebbing away and transferring their allegiances to a fresh-faced newcomer.

“After years of refusing to listen to popular opinion, the big two are suddenly confused and worried about the future.

“No, this is not about UKIP. It is about Agents’ Mutual. People power can work. There just have to be enough people at their wit’s end to make a stand. That is the way political and commercial earthquakes happen. Just look at UKIP.”

The Motley Fool articles are here:

http://www.fool.co.uk/investing/2014/05/29/3-reasons-why-rightmove-plc-could-be-the-next-internet-stock-to-crash/

http://www.fool.co.uk/investing/2014/05/30/watch-out-below-these-property-stocks-could-be-set-for-a-tumble/

 

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20 Comments

  1. Paul Sanderson
    June 2, 2014 at 06:50

    I own a small but expanding overseas estate agency in Spain, and used to advertise with Rightmove. That is until they attempted to increase the cost of my subscription by up to more than 100%. They assumed very incorrectly that I would just roll over and pay. When I didn't, and then disputed the new proposed charges very strongly, they then suddenly came up with a far better offer that was only around 25% more expensive than previously. I told them to stuff it, as even that was far more than I was prepared to pay. I didn't renew my subscription, instead I just diverted the revenue I would have paid them, to other more lucrative advertising sources. Business is now strong, and turnover continues to rise. I didn't need Rightmove at all, especially on their extortionate terms, I've proven that without doubt. I can't understand the stranglehold that they are allowed to have over UK agents, and those agents have only themselves to blame. It's just so easy to walk away. The Industry seems to have forgotten one of the most simplistic rules…….They need us far more than we need them.

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    1. MF
      June 2, 2014 at 08:22

      So true! We left RM several years ago for the same reasons, never looked back. All RM can do is offer us a place to list our properties – as do other portals. It's us who decide where to list; it's our "stock". Our decision.

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  2. David Cantell
    June 2, 2014 at 06:55

    Well Rightmove are offering 50% off with short contract terms at the moment, enough said…..

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  3. phoenix
    June 2, 2014 at 06:59

    "However, this could change next year. London’s six largest estate agents, disillusioned with Rightmove’s high prices, are planning to launch a competing website, Agents Mutual, in January"

    Above is a exsept from one of the Motey Fool articles that rRos refered to.I do wish AM ould get their publicity machine working…the danger for RightZoop is not a shift by "Londons six largest agnts" but the hundreds up a down the country who plan to comit to AM.

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  4. MF
    June 2, 2014 at 08:12

    Finally, the beginning of the end of Rightmove.

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  5. John Harding
    June 2, 2014 at 08:30

    I like many run a independent one office letting/Estate agency on the high street. I like many others have to put up with the high rice hikes RM have forced upon me. As independents I believe we have to support AM as they seem to be the only credible portal who may be in a position to take on RM. The structure of AM is sound from what I can see. I have already registered with AM as a Silver member and intend to fully support them.

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  6. jon@hiea.co.uk
    June 2, 2014 at 09:07

    Good god this makes such enjoyable reading. The absolute arrogance of Rightmove in particular over the last few years is finally coming to an end. Many years ago, when Rightmove was in it's infancy, I informed a network I was part of that if we didn't collectively resist RM, we would be in exactly the situation we are today. They dissagreed suggesting I was worrying about something unnecessarily!!

    AM are starting to get thier marleting engines fired up and they are looking for support from thier future partners to join in and spread the word. If you haven't yet taken up AM's offer, please do really think about it. You can see here, clearly, that they have more than enough momentum to change the face of agency internet portals for the better. AM is fundamentally owned and run by it's supporting agents. I really cannot see what there is to lose.

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  7. JungleProperty
    June 2, 2014 at 09:45

    I doubt RM are bothered about AM – they are far too 'we are No. 1' and arrogant to worry about this upstart AM. Nor do I believe RM will go to the wall over this as they are a good brand and agents are far too fearful to let go of something that their competitor down the road might be using but they may very well not be No. 1 in 5-10 years time as AM gains momentum they could very well be the ones to knock them off the top spot. Hats off to RM that they came up with such a profitable model using data donated by subscribers but I think you have been too greedy as you have squeezed more and more out of customers in the name of 'shareholder value' so the party may be coming to end as customers starting leaving.

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  8. wilko
    June 2, 2014 at 10:05

    Zoopla slashed my branch fees by 50% approx 14 months ago because I gave notice to quit. Following recent discussions with Rightmove they have already confirmed that my branch monthly costs are likely to reduce by around 30-40% if we stay with them. I always assumed that I would drop Zoopla and keep RM….But now I'm tempted to let them have a bidding war for who I keep (Until the point comes when I need neither).
    Isn't it amazing how much the tone and sentiment of these online discussions about RM/ZOOPLA have really changed over the past 12 Months or so. Where have all the "you can't do without Rightmove" brigade gone?. Encouraged by a much improved market the sentiment has really moved towards backing AM to the point where people are really seeing it WILL work, getting excited about the launch, and looking forward to the time when we will not need to rely on RM/ZOOPLA.

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    1. ampersat
      June 2, 2014 at 13:08

      “But now I'm tempted to let them have a bidding war for who I keep”
      I would suggest you keep them both going like a couple of lusty lovers for as long as it suits your purpose. It is far more economic to let them fight it out than you funding the squabble..

      While you have them on the run Wilko could you ask them both to refrain from using you data to power their comparables data tools. Both are using what I consider to be flawed algorithms to provide self confirming figures to vendors and these online passive intermediaries.

      More than the subscriptions you are passing to Rightmove and Zoopla how about you calculate 19% of you turnover YTD. I reckon that between March 2007 and March 2014 when prices were roughly at the same level the average agency, adjusted for lower transaction levels, is 19% annually down on turnover. The reason I believe is the fee erosion caused by PI and online Agencies, both only operate courtesy of the data you are allowing Rightmove and Zoopla to give away.

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      1. wilko
        June 2, 2014 at 15:05

        "ask them both to refrain from using you data to power their comparables data tools"
        I could ask but I know what the answer will be……..do you know how much the likes of E surv pay p/a for RM plus/Zoopla for comparibles?
        They make alot from data selling…shouldn't think they will want to stop it….after all it's theirs to sell.

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        1. ampersat
          June 2, 2014 at 18:13

          If I wander into your office and ask the agreed sale price of a property what would you or your staff say?

          How about the completion price?

          Does the Agency agreement you have with your vendors allow you to release such data to RM and Zoopla?

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          1. wilko
            June 3, 2014 at 09:41

            Interesting thought but land reg. details are public domain, and used by the portals….By advertising and marking up sstc we supply the recent comparibles to the sites….they sell memberships of RM plus to surveyor firms who dont advertise properties but need access to the up to date database.

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          2. ampersat
            June 3, 2014 at 11:59

            But surely your comparables data is one of the most valuable things you own. At no point in the past were your local competitors given access to your dead files for the purpose of going on appraisals as well informed as yourself.

            Please forgive me if it sounds a bit smart A5 re but being more informed about the market is one of the main differentiators between good agents and their weaker competition. Perhaps you are doing so well you can afford to have your normal profits reduced to 1% for that is exactly the proven result of your own use of the main Portals. The £1200 net saving of controlling the duopoly via AM is just 3% of the average true cost of the Duopoly distributing your data for their own commercial gain. It smacks of double insult to me not only is the industry paying through the nose for subscriptions but the one thing the parasite bottom feeders rely on to trade is being handed to them on a plate.

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          3. Taff
            June 7, 2014 at 14:34

            If you walked into my office and asked how much a particular property sold for I would tell you – because it's a matter of PUBLIC record and has been for years. Any Tom Dick Or Harry can find out what a particular property sold for after the relevant date just by going onto the Land Registry website. I'm disclosing confidential information – I'm disclosing public information.

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  9. andrew.low@westlows.com
    June 2, 2014 at 16:27

    The biggest problem from my point of view is the lack of transparency of the main portals fees and how they charge different firms different amounts. A problem which is compounded by the lack of willingness of agents to disclose the amounts they are paying (which of course I appreciate is partly due to the confidentiality clause in their contracts with the portals). If the portals allowed open discussion regarding fee levels then I do not think their customers would fee so aggrieved by their charges as it would be an open and level playing field with full knowledge. However at present the rumors of 50% discounts being offered to stay with portals are only adding to the rapidly growing feeling of discontent and distrust of the main portals.

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    1. PeeBee
      June 3, 2014 at 13:13

      Mr Low – "The biggest problem from my point of view is the lack of transparency of the main portals fees and how they charge different firms different amounts."

      Questions –
      * Do you charge every vendor the same amount as a Sale Fee?
      * Will you "do a deal" in order to gain an instruction?
      * How transparent are you with this information to your clients?

      I look forward to your responses.

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  10. Gattaca
    June 2, 2014 at 21:44

    What if Rightmove were to change business model and allow vendors to list direct?
    Currently they get £600 per month from 18,000 EA outlets ( as an average) = £130M per year.
    If estimated stock at each EA was 40 properties, Rightmove could go direct to vendors at a charge of just £1 per day to advertise their property on the portal which would generate an annual income of £260M per year ( Double what they receive now!)

    They get enough 'eyeballs' from potential vendors every day to make promoting this quite simple.

    Just a thought.

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    1. MF
      June 3, 2014 at 07:09

      Let them. There's a lot more to selling/letting property than the initial advert!

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    2. Taff
      June 7, 2014 at 14:50

      “What if Rightmove were to change business model and allow vendors to list direct?…. Rightmove could go direct to vendors at a charge of just £1 per day to advertise their property on the portal which would generate an annual income of £260M per year … Just a thought.”
      So what? Just a thought but …. Whose going to value it for them? Whose going to do the details? Whose going to take the photos and deal with all the daft “How big is the Lounge” type questions? Whose going to arrange their viewings for them? If I couldn’t do a better job than a private owner with a ***** polaroid and who fancies himself as a bit of a negotiator, I would pack in out of embarrassment.

      Report
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