Rightmove plc (RMV) Earnings Call Transcript & Summary

Good morning, everyone. I'm joined by Alison Dolan, our CFO; and Miles Shipside, our housing market expert. I hope you've had a chance to see the presentation. I thought maybe to start us off, I'd take a couple of minutes to give you a quick summary of all those words and pictures. I guess one can't start without saying that COVID has obviously upended the lives of everybody and it's had tragic impact on many people. And this time a year ago, we were in the middle of the unknown. And I know one of the key questions a number of you have asked me over the subsequent months is how well Rightmove has emerged from the lockdowns? So rather than compare against June 2020, which I think might be a little flattering to us, I'll focus my comparisons against June 2019 to give you a better sense. And from a Rightmove's perspective, I think we've emerged stronger. And as hopefully, as some form of normality returns, you can see that the network effects at the heart of our business are stronger than ever with record traffic and leads . Traffic over the last 6 months was over 60% higher than in 2019, which is partly influenced by the very strong housing market. But if you need a demonstration of the instinctive place that home hunters turn to first, we recorded our new busiest day ever on the 3rd of March, that was the day of the budget, with over 70 million minutes spent on the platform in a single day. And according to Comscore, our market share of time has nudged a little higher. Turning to the housing market, I'm pleased to say that the leading indicators that we show you every time have been proven right with HMRC recording more transactions in the last 6 months than any period before 2006. And there's been a lot of discussion about the impact of the taper of stamp duty holiday in the second half of this year. We're now over the first step of the taper at the end of June, and our indicators do give cause for cautious optimism. Demand is still higher this July than it was in July 2019, and sales agreed are running at a rate similar to about to those 2 years ago. So there's no sign of a cliff edge at the moment. And actually, there's still a lack of new stock coming to market. It's a bit better than it was back in February when we spoke but it's around 10% down on the usual run rate. And that's having a number of effects. Firstly, most obviously, house prices are being driven up. Average asking price is now 7% higher than it was at the start of the year. Probably surprisingly to many, the market is becoming more efficient. Typically, sort of long-term run rate, on average, only half of properties listed at -- sell. At the moment, that's risen to nearly 70%. And it's that increase, which is supporting the increased rate of sales being agreed. A couple of other impacts. New agent formation is perhaps slightly slower than one would expect at this point in the cycle as, of course, a new agent has to win all their stock before they can begin trading. And New Homes developers are also experiencing record demand, with 20% more developments selling out in the first half of this year compared to 2019. And you can see all of that rolling into our membership numbers. We've had record high retention rates in the first half of the year. So despite the slower agent formation, we've still grown agency branches by 130 since December '20. And whilst we have the same number of developer customers, the strong New Homes market, aligned to a slightly slower build rate, means that development listing numbers are down 211. And looking forward, I think we should expect more of the same in the second half, slightly up, maybe broadly flat branch numbers and a slight fall in development numbers while that supply and demand imbalance continues. I think it's difficult to predict the impact of the final end of the stamp duty holiday at the end of September. And actually, I think from my point of view, it would be good for the market and probably good for Rightmove if we saw a slight cooling. Moving on to ARPA, I think we've seen strong trends in both the Agency and New Homes ARPA. I think they're a little easier to see in Agency. Agency ARPA is up GBP 107 compared to June 2019, that's 11% up. And it's been driven by a combination of product adoption and price rises. We've had over 800 branches upgrade to our top package, Optimiser 2020, in the first 6 months of the year. And for context, we upgraded just over 1,000 in the whole of 2020. And like-for-like, Optimizer 2020 has been selling faster than its predecessor, Optimiser 2015. And we've still got lots left to go at for Optimizer 2020. We've got around 1,700 branches on Optimiser 2015, and we've seen around 40% of our upgrades actually to Optimiser 2020 coming from our Essential and Enhanced customers. With price rise, I think we were rightly cautious at the start of the year. But as ever, we've responded to the environment. So we've doubled the number of customers we're going to talk to this year with the majority of those conversations now complete. And looking at New Homes ARPA, at a headline level it's down GBP 17 since 2019. But I think the really strong market is hiding the underlying picture. ARPA from our subscription listings and subscription products to New Homes developers is up GBP 96, and that's been offset by a reduction in the one-off digital marketing, which developers often use to sell the last few plots on a development. And at the moment with such a strong market, they simply don't have them. And in terms of innovation, we've delivered the 3 new products we talked about back in February. Online conditional auctions, a solution for the built-to-renters category went live a few days ago. And the new advanced listings for New Homes developments, which is selling well with over 20% of new developments now buying that listing. And we've made good progress on our strategic innovations in the first part of the year. In the digital rental flow, Van Mildert has now been rebranded Rightmove to leverage the trust consumers and agents have in our brand. And the team have just delivered 1-click tenant referencing ordering for agents in Rightmove Plus, which obviously will save them time and rekeying errors. We've also made references 20% quicker on average over the last year with no lesser quality. So that's important for agents. We've also launched our new digital tenant insurance flow. We just launched that, and we've got much to learn in the flow, but it's certainly an exciting start. And we continue to make progress in our mortgage experiment. Over the course of the last year, we've doubled the number of leads we send to our lender partner. And we've increased the quality of those leads with 3x as many now receiving a lender-backed decision in principle. We've got more innovation planned over the course of the second half, too, but I guess I can talk about that when we meet again in February. So looking ahead to the second half, I think we'll see more of the same on membership numbers and further strong ARPA performance. Those of you who've followed us for a while know that usually in the second half, ARPA increases around GBP 10, GBP 11. I think this year, we'll do a little better than that. But I think actually, looking at your numbers, most of you have worked that out. One of the joys of a subscription-based business is you can get a head start on subsequent periods. So we're also making sure we hit the ground running in '22 by pulling forward some of the pricing activity that we would traditionally have done in early '22. And finally, we're continuing our progressive dividend policy by increasing the interim dividend to 3p. So that's it for me. Now over to questions. Perhaps Nadia, you could just remind people how to ask a question.

[Operator Instructions] The first question comes from the line of Gary Barnett-Lamb (sic) [ Joseph Barnet-Lamb ] from Credit Suisse.

Jo.

Jo Barnet-Lamb. So that's fine. That's -- no problem to that. I have 3 questions, if I may -- anyway, 3 questions for me, if I may. So Alison, you gave some great color around the drivers of ARPA in your presentation. In New Homes, you've was discussed about the GBP 83 drop from digital marketing, which is typically on top of subscription. What percentage drop in digital marketing was that, i.e., how much digital marketing revenue remained in New Homes in H1 '21? And could we see sort of a greater drop off from that perspective and going through the year? Secondly, on Opportunity Manager, thanks for the color on how the product works and the value it drives. I don't think you explained much about monetization, except to say that it's only available to Optimiser 2020 customers. Can you talk a little bit around the incremental charge associated with that, and how material an opportunity it could be? And then thirdly, you mentioned bringing forward a number of the price increases which are scheduled for later in the year. From your comments, just a second ago, Peter, I'm assuming that, therefore, isn't actually implementing price rises sooner. It's just having the conversation to lay the groundwork for them sooner. Is that the right way to sort of think about that? You're not actually doing the price rise sooner. You're having the discussion to alert them of the future price rise earlier. Is that a correct way to interpret that?

Thanks, Jo. Should we maybe work backwards up those questions? So the first one, the price rise. We're actually going to implement them sooner. So it's not just conversations, conversation and action. But you won't -- given the timing in the year, it won't impact revenue and ARPA really in '21, it will be a '22 impact. Hopefully, that's clear. But we will be doing -- we'll be bringing forward some of those conversations and action. Opportunity Manager. Opportunity Manager is part of the Optimiser 2020 package, so it's one of the things that you get as part of the package. It's not an extra -- there's no extra monetization, but it's certainly one of the reasons we see customers upgrade to Optimiser 2020, too many Os. Optimiser 2020, it's a package, in many ways, like our others. The 2 features are access to Opportunity Manager as part of the package but also exclusive access to our Sold By Me product, which is an additional charge. So it's those 2 things which are driving the upgrades to Optimiser 2020. Does that make sense?

Yes, absolutely. That makes perfect sense.

All right. And then perhaps over to Alison to answer the digital marketing question.

Yes. So digital marketing would normally be about GBP 4 million. And this drop represents about GBP 1.5 million of that. It can be quite seasonal. We normally see a drop into the November, December time anyway. But just to put it in context, that's the sort of quantum that we're talking about.

The next question comes from the line of William Packer from Exane.

Three, please. Firstly, the tone around costs on the webcast is quite cautious with phasing definitely highlighted. And I think the substance of the commentary is actually quite positive, and I wanted to check if my understanding is correct. So you said OpEx would be 25% of sales for FY '21 and FY '22, which compares to consensus expectations of 27% for FY '21 and '22. Is that a fair summary? Secondly, you mentioned agent formation is a bit slower than you would have expected in this market context. Do you think this is structural or cyclical, i.e., is it cyclical because of the lack of stock? Or is it the dynamics around online estate agency mean that you have a more consolidated market? And then finally, monetizing vendor leads has been a critical growth driver for your business in recent years. Scout24 have made quite an interesting acquisition in the space in ImmoScout24 they directly share in the agent commission. Are there similar businesses in the U.K.? Or is this the kind of model you might experiment with in due course? Or is the U.K. market structure less integral?

Thanks, Will. On the cost side, yes, absolutely, 25% of revenue is what we're expecting for the full year, which will be a little bit more than double what you've seen in the first half for a couple of reasons. We will still be recruiting in the second half. Just recruitment given all the issues in lockdown has been a little slower than we expected. We have also had the Van Mildert provision relief, which was GBP 2.4 million, which will be a reduction in costs in the first half that won't repeat in the second half. And then finally, savings from people being at home have just gone on for longer than we thought that they would, and so not all of that will be available in the second half as well. So think of full year costs as slightly more than H1. But I guess, very much within the guidance that we've given you, towards the low end of that guidance, in fact, -- and I think we've been quite specific on the percentage of revenue guidance.

Okay. I'll talk about the other ones. So agent formation, cyclical or structural, I think it's cyclical, Will. It's very hard to win stock. There's a couple of elements. New stock to market is obviously tight, and that means as an existing agent, you sort of get first go. So as a new agent, to win a portfolio to sell, if you like, is really tough. So people are staying out. And actually, existing agents aren't -- talking to some of them are sort of poised to open new branches, but they want to see a bit more stock return to the market. And there's perhaps a slightly secondary effect. So because now 70% of properties selling in the market is much more efficient, there's many few properties that are moving from agent to agent. The agents call those secondary instructions. And that sort of second bite at the cherry is going away because things are selling so quickly. So I think that's what's going on, definitely cyclical. Structurally, no one's asked me the question yet, but I thought I might as well give you the answer because someone will. The hybrid agents' market share, the sort of whole segment market share pretty steady at around 8% of listings. So we haven't really seen any change there. I can talk about that more if someone wants to talk about that. But vendor leads. Yes, really interesting some of the stuff that Scout are doing. There isn't really an equivalent to Immo [ cal ] in the U.K. I mean some very, very small things, but nothing at that sort of scale. I think partly it's due to the structure of the agents in Germany versus the agents in the U.K. The sort of sharing in commission, most big agents in the U.K. -- and that's typically my understanding is that agents in Germany are a lot smaller. So there is -- whilst they have big networks, the individual realtor, if you like, more like a U.S. model, is much smaller. So they're much more willing to share in commission than our agency businesses. I think sharing in commission's an interesting topic for the very small. And certainly, one of the things that's sort of on my radar as maybe a way of helping people start up at some point in the future. Does that answer it, Will?

Yes. yes. Thanks for the color. That's helpful. Appreciate it.

[Operator Instructions] The next question comes from the line of Andrew Ross from Barclays.

I've got 3 as well. First one is just to pin you down on a bit more detail on the half year guidance for this year. You said you'd expect it clearly to grow in the second half versus the first half more than normal. But I think in the full year results, you talked about growth of 8% against the December 2020 base or around GBP 1,190. So is that still sensible for this year? That's the first question. Then the second on is to come back on the pull-forward of price increase for '22. Can you give us any kind of steer as to how many agents have been pulled forward? Or I guess, a different way of asking that question is, normally you think about ARPA growing, let's say, GBP 80 year-on-year in absolute terms. How much better than that might you do for 2022 as you see it today? And then the third question is on Van Mildert. Can you just remind us why you haven't made the earnouts. So kind of what the targets were or why it wasn't asked there? Any color on that would be helpful.

Thanks, Andrew. I think I can whiz through all of those. So ARPA guidance. Yes, I think what we said back in Feb was, expect slightly softer than 2019 in -- on that December ARPA number. Yes, I think we'll do a bit better than that. So 7% to 8% probably would be would get to your sort of numbers. So I don't shy away from what you've said. In terms of pull-forward price rise, it's about double the number that we were expecting in total. It will be about double the number this year that we were expecting. What does that mean for ARPA next year? That, plus the product stuff we're doing, I think we'll do better than the sort of GBP 80 to GBP 90 next year in absolute terms. And then Van Mildert earnout. So Van Mildert earnout was based -- effectively, it was a sales number over an average of 2 years. Probably really important to point out that most of the earnout went to the former owners, not the management team. So I'm really sort of -- I'm really okay that the management team are still super motivated because this didn't really affect them at all. And obviously, through the pandemic last year, the sales rate was -- the sort of referencing rate was significantly hit. The housing market, obviously, including rentals, was shut for nearly 3 months. It then took a little while to get back going after that with all the obvious concerns about health and well-being. So that's really what's led to the Van Mildert earnout. And as I say, I feel really comfortable that the management team are protected and motivated, so that's what's most important to me. Does that answer your questions, Andrew?

Yes. That's great. Maybe just to follow up quickly on my second one. You said you were increasing about double the number of agents you normally would, what's the kind of typical amount? Just to try and put a number on that.

So it was -- it's double -- it's -- I'm not going to give you the number. But it's double the number we set off at this year. So I think probably at the start of the year, we were still pretty uncertain about what the market was going to hold so we were a bit cautious. So we're getting closer to our usual run rate for a year, actually.

The next question comes from the line of Miriam Adisa from Morgan Stanley.

Two from me. Firstly, just on the additional opportunities that you mentioned that you can get from the referencing product. I think you spoke about an additional GBP 4 of profit per product. Could you just give us a sense of where that may be able to get to over time. I know you mentioned we shouldn't get carried away, but it would be good to sort of see how you think about that evolving over the next couple of years. And then also you did mention that the market at the moment is quite competitive, so how do you think you can create that differentiation? And how do you plan to increase the attach rate? And then secondly, just on the competitive environment. I think you said you saw Boomin have sort of 1% share of time spent. Have they done anything that surprised you? Or -- and what are you seeing in the broader competitive landscape?

So GBP 4, where could it go? Certainly north of GBP 4. As I said, please don't get excited about it yet. We're still very much in the foothills of that journey. I think we're probably less than half of what it could be, maybe a bit more than that actually in terms of -- and that will be a combination of things. That will be about partly increasing the attach rate. As I say, we've currently been doing most of that insurance work via telesales, and that's deliberate because it allows you to learn very quickly in terms of what's important to consumers because we've never sold anything to consumers before. So for us, this is a real journey into the unknown. Makes it super exciting for me. So the launch of our new digital flow, which only launched a couple of weeks ago, that's one of the key ways that we will increase the attach rate. And that will be a process of learning. As I said, we've got to learn -- we've got a really good team who have experience in this, but we've got to learn how it works in this context. So that's probably how we will move the attach rate up. And then things like TV and broadband, we've only just started talking about TV and broadband, so there's lots to learn there. One of the critical things that we -- and one of the reasons why we used the telephone first is what we've discovered is timing is critical, which is one of the exciting things about doing the reference because you know the move-in date. And I think maybe some of you have heard me said this before, what we've discovered is that you have to talk about broadband much earlier in comparison to the move date, then you talk about insurance in terms of how a tenant's mind works, which makes sense to me, "God, where would we all be if we didn't have broadband at the moment," whereas insurance feels like a bit of a sort of admin task. So one of the learnings is actually what's the perfect timing for the conversation. And when I mentioned differentiation, that's really -- that's less about those products. It's more about referencing itself. So actually winning the reference business from lettings agents. And the way we're doing that, and it's the path we've started out and you can see -- I suppose it started all the way back with our first version of the passport, is integrating that referencing flow, starting it much earlier and integrating it into the tenant's property search. So that's sort of how that will flow out. And I think we've clearly got a big advantage over every other referencing company because we've got, by far, the biggest number of tenants sending leads on by far, the largest number of rental properties in the U.K. So you'll see us integrate more and more and more. Hence, the reason one-click ordering, reference ordering in RightmovePlus. So that's sort of how we're thinking about that. In terms of competition, I think Boomin have -- I probably said this before -- you know, I think I totally respect the Bruce brother's marketing ability. So they've come out strongly with some really good marketing messages. I think one of the lessons for us, which the team have taken on board is, I suppose the language I would use is sort of merchandising. How do you describe your features in an exciting way? And I think they've done a great job on some of that stuff. So I think there's some lessons for us to learn there. I don't think -- I think there's sort of some detailed things in there. But perhaps not surprises, but some great -- some really great learnings for us. As ever competitive environment, the real challenge for any competitor is getting consumers to go to your website. And you can see from our numbers, as I say, it's Rightmove they turn to first. That's the result of 21 years now, believe it or not, 21 years of marketing spend, brand building, delivering on our promise to consumers to show them properties and to be 100% available and fast and all those really boring things that sort of interest me but don't interest many other people. But -- so all of that comes together. So that's the real challenge. Can you get a consumer to turn up to your website because, of course, we're free to consumers, and I think that will continue to be the challenge for competition. Does that answer it, Miriam?

Yes, that's great. Thank you.

[Operator Instructions] The next question comes from the line of Adam Berlin from UBS.

Three questions from me. First one is a numbers question. Can you break down the GBP 1,103 ARPA for December '20 into New Homes and Agency ARPA just to see how each of those have progressed since December? Second question is, can you comment on the new Strike kind of model, which is allowing consumers essentially to list their properties in Rightmove for free? Is that a path towards kind of more digital model for selling houses online that doesn't require kind of a normal agency? How are normal agents responding to that? Is it having an impact on the market yet? That's the second question. And then the third question is, how do you think the market changes from its current dynamic where you've got such high demand and not enough new listings, so just the number of listings keeps falling. What's going to -- what do you think could change that dynamic that we get back to a more normalized number of listings in the market? And how long do you think that might take? I know it's a crystal balling, but just interested in your opinions on that question.

Maybe I'll take the ARPA point feature and then -- so Adam, I would discourage you from breaking out the GBP 1,103 in that way because the GBP 1,103 is a 1-month ARPA number, and so it doesn't really make sense to compare it to the 6-month trailing ARPA just because there's too much in the mix. And there's also a unique dynamic to the 2020 number, which was the extent of a la carte product prices because those numbers were so discounted as well as the unwind of the discount, which was going on over October, November, December of 2020. So I think the more clarifying comparison actually is what has happened between June '19, December '19 and June '21. And so maybe just to give you a little more color on that, so the Agency ARPA increased by GBP 107 between June '19 and June '21. GBP 12 of that GBP 107 came between June '19 and December '19, and then the remaining GBP 95 as the market recovered from December '19 to June '21. And I think, really, 2020 was so disrupted that trying to compare any particular monthly specific points to the 6-month trailing '21 number doesn't make sense and actually won't give you a proper picture of what has happened in the interim.

Okay. I'll -- why don't I answer the -- your question about Strike, and then maybe we can bring Miles in to uncover his crystal ball about the marketplace. So in terms of Strike, I think the way to think about Strike is, Strike are an estate agent. They have -- they're very similar in set up to the other hybrid agents, so Purplebricks, Yopa and Co. They're exploring a different charging model. So whilst it's free to list with Strike, you do have to commit to using their own services. And I think this is a story that we're seeing a lot of and probably predicted for a while. The hybrid agents are all experimenting with different charging models. It's not a -- it's still quite nascent. So you probably have seen Purplebricks now have a -- also have an option where whilst you committed upfront, they also have a refund option if you don't sell. So they're experimenting. And actually, what we're seeing, interestingly, is traditional, if I can call them that, traditional estate agents experimenting the other way. So talking to some agents, there are some now who have 3 packages. They have the sort of well-known no-sell, no-fee model. They have a sort of small upfront fee followed by a smaller on-sale fee model or they have a wholly upfront fee. So there's sort of -- there's a whole bunch of experimentation going on. But I think the fundamental story is Strike are a hybrid agent just trying to compete with the other hybrid agents. I think they will have some success. It is fascinating, as I said at the top, that the hybrid agents as a total marketplace is about -- still about 8% as it has been for quite a long time now. So I think they're winning within that context rather than versus hybrid agents. Maybe I'll hand over to Miles to give you his prognostications on the marketplace.

What changes the dynamics on listing numbers? So predictions are always difficult, but particularly over the last 18 months have proved difficult with many common theses predicting doom and lower house sales and low house prices rather than what we've seen. So looking forward, basically, demand is exceeding supply. So we need to change round in that to actually increase listing numbers and increase the supply. So the usual dynamics are still happening. New households are being formed, first-time buyers buying partnership split-ups. You've got a 5% deposit coming in on first-time buying mortgages, so that increases demand as well. And obviously, the ongoing effect of people looking to have new housing needs and the house providing for things in front of the lockdown still ongoing. Supply, more new build is obviously one route forward. But as Peter said, a lot of that is forward sold. So we need more sellers coming to market who aren't buying to increase supply. But I actually think these low stock levels are going to continue because we're seeing a buoyant market. What's happening though, as Peter said, more efficient market, properties selling quicker. So agents have got used to operating on lower stock numbers and essentially, they're operating on a faster turnover. So it plays into Rightmove's hands because obviously, if they want new listings, advertising on Rightmove and using Rightmove's products, very important for attracting new listings. So a bit of a waffly answer, but I think more of the same for a period to come. Obviously, a slump in the market means that you get more properties than sold, and that increases stock numbers. But we can't see the signs of that at the moment.

Thanks, Miles. Anything else, Adam?

Just sorry, Alison, you said of the GBP 107 of Agency ARPA since June 2019, GBP 12 came between June '19 and December '20, is that correct?

No. No. June '19 and December '19. And then the move from December '19 to June '21 was GBP 95.

[Operator Instructions] The next question comes from the line of William Packer from Exane.

Peter, just a quick clarification. It should hopefully be quick. Just to understand your precise wording around ARPU -- ARPA for FY '21 and '22. I think you said there should be better than 7% to 8% growth versus FY '19, FY '21. And I think you said it'd be better than GBP 80 to GBP 90 of absolute growth for FY '22. Is that correct? Just to avoid confusion.

50%. Thank you for the clarification. So what I think I said was better than 7% for '21, a little bit better. So...

And that's versus FY '19?

That's versus '19 -- sorry, no. Versus the number that we gave you at the start of the year.

The 1-1-0-3.

The 1-1-0-3.

The growth is versus -- the 7% growth rate is versus FY '19?

No. It's versus the 1-1-0-3. And then in '22, yes, better than GBP 80 to GBP 90.

Thanks for confirming.

[Operator Instructions]

I think we're done, Nadia, I think everyone's asked all their questions.

There are no further questions. I would like to hand the conference over to Mr. Peter Brooks-Johnson for closing remarks.

Thank you, everyone. Thank you for coming along. And as ever, if you've got follow-up questions or detailed questions, don't hesitate to get in touch with Alison or myself. We'd love to talk to you. Have a lovely day.