Rightmove Rebounds from Earlier Slump

The slowing housing market in the UK has dragged down shares in the home sale listing company, but can there be something in the upcoming trading update to revert the situation?

Making the Best of a Tough Situation

Last week, Rightmove's share prices hit their lowest in a year but have managed to stage a modest rebound to recover at least the green for 2023 so far. The stock was particularly hit in late October following the report of a sharp drop in the asking price of UK homes. In the immediate aftermath, share prices collapsed 12% and were down as much as 16% over the subsequent days.

It's understandable that a listings company will be under pressure in the midst of a housing crisis, in this case, driven by the sudden rise in interest rates. The BOE is expected to keep rates at least as high as they are now until the middle of next year, which means the UK property sector could remain under pressure for up to three more quarters. But a closer look at Rightmove's latest earnings release could indicate that worries about the impact of rates on the company's profits might be overwrought. Despite declining home prices in the first half of the year, Rightmove saw its revenue increase by 10%

Ready for Future Demand

Unlike traditional estate agents, Rightmove does not generate income from commissions on sales but rather on the costs of listing and advertising. As homeowners appear to be increasingly interested in offloading real estate, average spending on the platform has actually increased 9% in the period before the last report. The company noted that the use of digital products increased, allowing the fastest revenue growth since 2018. Despite the continued pressure on the housing market, the recent rebound in its share price doesn't seem to be all that much of a surprise in light of the company's performance so far this year.

On the other hand, whether or not that trend will continue is a different question. The company is slated to update investors on its trading situation next week. Investors will be keen to see if the average revenue per advertiser (ARPA) has continued its prior growth. Rightmove has benefitted from growing average time on site, which allows for improved advertising revenue. It's not surprising that in a troubled housing market, people will be spending more time on a listings site. The company announced increased investment but reported that its cash holdings had risen slightly. Given that the company's profit increased only 3% in the first half compared to the 10% jump in revenue, investors might also be particularly keen to see what Rightmove plans to keep margins from contracting.

Rightmove in Potential Triangle

Following a lower high at 600p in October, the share price of Rightmove appears to be reversing from a higher low of 460p. Typically, such price action spells a triangle pattern, with the failure to extend to previous peaks/throughs as the reason to exclude a range. Nearly a 90% correction can be seen for both swings, which brings 580p in focus should 535p and 575 (the gap swings) get filled. Exiting either of the higher degree levels at 615 or 435p would increase the chances of a directional breakout and, depending on timing may also invalidate the premature triangle thesis.

Source: SpeadEx / Rightmove

Key Takeaways

Rightmove has experienced a decline in its share price due to the slowing housing market in the UK, but there is hope that the upcoming trading update could reverse the situation. Despite the housing crisis, Rightmove's latest earnings showed a 10% increase in revenue, indicating that concerns about the impact of interest rates on the company's profits might be overstated. The company generates income from listing and advertising costs, and average spending on the platform has actually increased. Investors will closely watch the trading update next week to see if the company's average revenue per advertiser has continued to grow and how it plans to maintain margins.