JPMorgan Cazenove downgraded Rightmove this week to ‘underweight’ from ‘neutral’ and cut the price target to 493p from 585p as it pointed to higher R&D and opex spend.

Reflecting on the impact CoStar, which acquired OnTheMarket last month is having, JPM pointed out that Rightmove’s shres have almost fully recovered after an initial drop when the OTM deal was announced.

“This has arguably been supported by 1) better-than-anticipated property market dynamics/falling rates, but the short-term recovery inevitably also reflects 2) a consensus view of rather limited impact of the new challenger – a point which we assess in more detail in this note and ultimately conclude may be being underestimated,” it said.

JPM said that importantly, traffic share is key for ongoing average revenue per advertiser (ARPA) growth and with nearly 100% of inventory and more than 85% organic traffic share, incumbents are likely immune to higher marketing efforts by challengers.

“However, we argue that requirements for permanent best-in-class tech and consumer experience are rising, prompting higher R&D and opex spend.

“While our assumption for Rightmove’s top line growth is broadly in line with consensus, we see downside risk to profitability, forecasting operating margin to trend below management’s 70% target from 2025 onwards.”

JPM said that with that, Rightmove is likely to generate below sector average 7% growth in EBITDA between 2024 and 2026, “making it increasingly hard to justify” a valuation on 16.2x estimated 2024 EV/EBITDA, hence the downgrade.

Shares in Rightmove dropped 4.6% yesterday morning, before recovering to end the day down 2.7% at 528.4p.