Rightmove plc (RMV) Earnings Call Transcript & Summary

Good morning, everyone. Good morning to those of you in the room and those of you who are joining us via webcast. My name is Peter Brooks-Johnson. And I'm joined by Alison Dolan, our CFO; and [ Rory Hook ], our Head of Commercial Finance. Hopefully, you've had a chance to see the presentation, which we posted online at 7 a.m. I thought I'd take a couple of minutes, only a couple of minutes, to start off with to give you a quick summary of all those words and pictures that are in the presentation. The network effects at the heart of our business are stronger than ever with -- as you can see that we've delivered record leads yet again. In terms of our customer numbers, we're broadly flat. Sorry, got on the wrong [indiscernible]. In terms of the customer numbers, we're broadly flat. And in terms of ARPA, we've had a great result with ARPA up GBP 127 in the first half of the year. We talked a lot in February about momentum, and you can see that coming through with our momentum delivering in product delivery and that leading to that ARPA growth and also in Optimiser upgrades, which have been a record again in this half. We've completed the migration of Optimiser 2015 to Optimiser 2020 but also added a record number of new customers to Optimiser from the other customer groups. We've got lots of innovation that we've delivered in the last 6 months, which I suspect some of you will have questions about, so I won't talk about too much now. And we're in a really strong position for the second half of the year, where we expect customer numbers to be broadly stable and also the ARPA to be returning to sort of the normal growth rates that we've seen in previous years.

So I won't go on. [Operator Instructions] If you're in the room, please say who you are, and the microphone will come to you. So we'll do the room first. Will.

It's Will Packer from BNP Paribas Exane. Three for me, please. Firstly, could you talk a little bit how you're thinking about the next price rise cycle? Remind us of the sort of calendar cadence. When does it really get going? My memory is it's kind of more Q4. But could you just remind us of that? And then some of your peers or in other markets, we're hearing intelligence that the inflationary backdrop brings the potential for some greater than typical pricing action. How are you thinking about the role of inflation as we look into the second half of the year? Secondly, on the presentation, there were various comments around the outlook on membership, lettings agents reacting a bit different to sales. Can you just kind of wrap it up for us and remind us how we should think about that as we look forward into the second half of the year in the context of the macro developments? And then finally, I suppose in what was a very solid set of results, the other line perhaps was a little bit weaker than expected. In the presentation, there were some references to changes in mortgages. Could you just talk us through that and how to think about it?

Great. Thank you. So taking those in turn, next price rise cycle, you're right, Will. Through 2020, we slightly changed our cadence. So we've completed -- now we've completed about 90% of our price rise for this year. We have our sort of testing, if you like, for 2023, begins in Q4 for the 2023 cycle. And maybe I'll wrap up into that the -- how does one think about inflation on price rise. I think what's really important to us is that our price rise reflects the value we deliver. And we're very fortunate as a business, of course, that we don't have huge inflationary pressures on input, being 100% digital. So what we will always do when we look at price rise is we look at the value gain that we deliver rather than sort of saying we take inflation plus X. It's very much not the way we think about the world. So that's how we're thinking about the price rise cycle. As we sit today, certainly feels like it will be a relatively normal price rise year next year. Talking about membership balance, which I think was your third question, yes, what we're seeing is interesting. And really, it's probably -- there's a couple of trends in there. So if one takes -- just covering New Homes briefly, so continuing to decline in New Homes developments as supply and demand remain in balance for New Homes developers. That's now starting to slow. So in the presentation, you'll see there's a chart there that shows that the number of developers -- developments we're losing is -- has slowed. But really encouragingly, number of development starts has increased. So that's now starting to feed through into the market. And I think we'll probably see a stable development number through the second half and hopefully a little bit of growth into H1 next year. Talking about lettings agents, as you mentioned, lettings agents, we've seen probably since the tenant fee ban a few years ago, if you just do lettings, it's quite a hard business now. So we have nearly 3,000 agents who just do lettings. What it means is to be a lettings-only agent, you either have to have quite a large book of managed properties, which means you get good income off the property management fee, or you have to do sales as well because you can't charge tenants now for lettings. So we've continued to see that in this half, a reduction in those lettings-only agents. And sort of to add to the challenge of being a lettings-only agent, we're seeing big supply-and-demand imbalance in lettings, particularly. So that means we've seen a reduction in those lettings agents. As I say, it's really a continuation of a trend. What's good news is we've seen an increase in the number of sales agents or agency who do both sales and lettings. And that's actually the largest increase we've seen, net increase we've seen since the first half of '16. So that's sort of a mix adjust, if you like, within those numbers. I think fairly reasonably, given the uncertainty, we'll probably see new agent formation slow again in the second half. So my sense is that sort of around about flattish on agent numbers is what to expect for the rest of this year. In terms of other, yes -- well, first of all, we're saying, in terms of the core businesses in other, so the businesses in other, Overseas, Commercial, Data Services, they've all grown really well. So actually, they've grown at about 20% in the first half. One of the things that we chose to do, which is -- I feel really lucky that we're in a position to do this, we chose to change how we get paid for the mortgages business. So we've moved away from an advertising fee, so a flat fee for advertising, and we now are paid on number of mortgages -- Mortgage in Principles completed. So with -- that reduces -- short term, that reduces the income, but we've taken the decision because that means it's a much bigger opportunity in the long term. And as I say, I feel really lucky that we're in a position to make that decision now, and that sets us up really nicely for the long term. And hopefully, you'll have heard our new integrated Mortgage in Principle went live yesterday. So that's the first step. So we've now got lots of optimization work to build on that to generate more Mortgage in Principles, which actually means now that we'll generate more revenue as we get that done. Wouldn't expect that to be exponential growth in the second half because we've got lots of learnings, so don't get too excited yet. But I think for the long term, it sets us up really nicely.

Just a quick follow-up on the new home. Is there any structural reason why you can't go back to previous highs in number of members and grow beyond that? Has anything changed? Or has it just been the sort of cyclical context of the market?

Yes. I think -- I still believe what we're seeing is a long-term trend where agents are either getting bigger or smaller, which feels like the sort of blindingly obvious statement. But what we continue to see is a little bit of consolidation in the midsize but actually at the small. And so that we've had a record number of new sales agents [ where we were ] high since 2016, it's actually at the small, they're fragmenting faster than ever. Of course, you can work with fewer people. You can use technology and the services we deliver to be an agent. So I still think we're on course midterm to have more agents than we've ever had.

And sorry, new home development?

Sorry, New Homes developments, there's nothing to suggest that what we're seeing is anything other than the sort of supply and demand. In fact, New Homes start numbers now are higher than they were in '17, '18.

Yes. It's Ciaran Donnelly from Liberum. Three for myself as well. One, if we just talk about kind of the rental opportunity and kind of market share and referencing, clearly, you've had a bit of growth there. If you could just kind of give us some insight into what are the drivers of market share growth and kind of a sense of where you think you can get that to over the medium or longer term. And two, just on the additional revenue per reference, did 9% year-on-year growth. Is that what we should expect going forward? And similarly, again, if you can kind of give us some longer-term outlook. And then thirdly, I guess, obviously, with Peter stepping away in the not-too-distant future, I'd be interested to hear kind of your insights on how Rightmove broadly thinks about kind of continuity of strategy and how that's kind of integrated throughout the firm.

Okay. Well, good set of questions. So talk about market share growth, where does it come from, where could it go to in our tenant services? So in terms of references, what's really sort of interesting is we've applied, if you like, what I would call our basics, so our sales skills so far. That market share growth has come from taking what is a great product, so it's high-quality quick turnarounds. One of the things we really care about and one of the things that attracted us to Van Mildert in the first place is they have a high-quality reference, and agents really believe in it and trust it. And we get really good quality feedback scores, which is important. And what we've done is we've taken our sales skills. Obviously, we have about 150 people talking to estate agents every day, and we've got a trusted brand with estate agents. So you might remember, we rebranded Van Mildert Rightmove Landlord and Tenant Services in the middle of last year. And that's really what we've done thus far. It's really been about just applying the basics and doing them well and the skill sets we have. We're now in a position, with the releases in June, with the lead-to-keys tenancy workflow, the open banking reference and also the prequalification, which is going to come in the second half of this year, where we're now starting to deploy our products muscle, if you will, into referencing. So we think we can absolutely grow from here. Where can we get to? Our estimations at the moment, we're sort of -- we're targeting -- I think we've been pretty conservative, but we're saying, well, 30 -- 30-odd percent market share of referencing would be great. That's our sort of mental model. That's how we're thinking about the cost base. I think in the future, Rightmove could do better than that. So we've been pretty conservative on that. In terms of the additional revenue growth, again, what's interesting there is that's partly about deploying some good discipline in terms of how those additional products are attached. We haven't really pulled the digital lever yet. And actually, creating -- one of the things we've done is we've innovated in insurance product in that marketplace, which, again, it's new for us. And it's quite -- so that makes it quite exciting for me. It's -- so we released to the -- right at the back end of last year, we released a new landlord -- type of landlord insurance into the market, lower cost, which protects the landlord from their cost if a tenancy goes out. It also protects the agent for their cost if it goes out. But it's cheaper, so you get better take-up. So that's what we're doing there. Again, I don't see that we can't keep deploying that and maybe pulling the digital lever. I don't think 9% growth on tax rate is an unbelievable number for the future in the next few years. Again, just a word of caution, I don't expect it to suddenly go exponentially in the next 6 months. We're doing a lot of work. It will pay out over the long term. As you know, with us, we invest and we want it for the long term. We're not looking for a quick hit. The last question, I'll give you my answer. Maybe Alison will have a different one. But how do we embed sort of what we're doing? Well, I think it's -- we -- the management team, they're all in. It's not my strategy. It's our strategy. It's the Board's strategy. And we just reviewed -- as we do every year, we review the strategy, well, 6 weeks ago. It's perhaps different to some companies, especially it's quite a big document actually for what you will consider a simple business. And it's that. It's embedded in what we do, and it's embedded through the organization. So the skill sets we have are embedded through the organization and are embedded in the business plans. So that's how we sort of make sure that we get the continuation is it's not one person's strategy. It's a team strategy.

Yes. I mean, the only thing I would add to that is that it -- that strategy has the buy-in of the entire management team and the Board. And from talking to shareholders, it would seem that they are entirely supportive. So I think in -- all of the processes and the way in which we have developed the plan to execute that just have a lot of support from all of the stakeholders really.

Yes. This is Pete from Morgan Stanley. On new developers for the volumes, is there some kind of like a mix effect for ARPA from the developers that are now dropping off? Are they higher or lower ARPA than the average? And then the second question is on mortgages and the changes you made. Is there a reason why you made it now? And why do you think that it's a better long-term opportunity? And have you had any kind of feedback from that?

Okay. So the mix is just probably -- just worth being super-duper clear. So what we're losing is developments from the same customers. So there isn't really an ARPA adjust because it's, yes, a few fewer from the top 20 broadly rather than sort of some change in customer base. Why now for mortgages? I think now is a good moment for us as we start to deploy those tools, as I say, the integrated Mortgage in Principle from yesterday. As we start to deploy those, I think it's just much better that we are motivated now to really optimize that tool. With -- obviously, with the flat fee advertising, you say you're motivated, but it's not quite the same. So for us and our lender partner, we are entirely aligned now in terms of that. So that made it a good moment. Probably, frankly, it's also a good moment because let's do it early in the journey. So there's not a massive delta as well. That would seem like you get addicted to the advertising fees, you start to not want to switch, which doesn't seem like a great motivation. The feedback, I think, is very early in terms of the flow. I'd say it was only yesterday. But broadly, in terms of the model, I think it's a much better model for the future because in the end, any partner is only going to be willing to spend a certain amount on advertising fee. And it's quite difficult to then have -- quite difficult discussions about attribution and what was brand, what led to mortgage, whereas this is really, really clean. It's also the way that the industry works. It is the way the mortgage industry works. So I think for the future, it could lead to much large numbers if we deliver what we think we can.

It's Catherine O'Neill from Citi. I've got a few questions. The first one is on Commercial and Data Services, the revenue opportunity, because I think you said they're growing at least 20%. I guess it's still relatively small now. So I'd just like to understand a bit more about what you're doing there and where you see the opportunities. The second one is, I think in the slides, you mentioned about some new products in the second half but also maybe products between tiers or between Enhanced. And so yes, I just want to understand a bit more about what your new product plans are for the second half. And then on your 2023 conversations, which you haven't started yet, I think you said you expect to see like a normal ARPA uplift. Is that normal, the GBP 95 to GBP 105 that you'd talked about for 2022? And anything you worry about that might knock that off track, I guess, with the uncertainty in the market? And then one last thing is on inflation in the second half on the cost side, what kind of inflation are you seeing on wages or payroll? Sorry, quite a few questions.

Okay. Well, Alison, do you want to talk about Data Services and Commercial and inflation? And then I'll do the middle 2.

Sure. Yes. So in terms of Commercial and Data Services, both of those business units are worth about GBP 9 million and both growing pretty strongly, so 20% or so, particularly in Commercial. The backdrop to that growth is that the commercial sector lags the digitization of residential by probably 8 to 10 years. And so it's only really now and the pandemic has helped to change some of this behavior. It's only really now that we are seeing increased usage of portals like ours, both by owners of property and seekers of property, to be willing to carry out those searches themselves and to do it directly without a heavy usage of brokers and agents as used to be the case previously. And so what we are seeing then is increased, both listings, and increased search, which means that the value of the listings is increasing to the owners of property. They're seeing more and better leads coming from us. So there's an awful lot of organic growth left to come in that business line. And then specifically, we have a number of initiatives that focus on particular sectors within Commercial. You won't be surprised to hear that flexible office, for example, is one of the sectors in which that digitization is really changing. And we are investing sort of not terribly far ahead of that curve but I think at the right time to really tailor the search journey and the user experience for seekers of office property. So that will be -- I mean, it really will be an organic growth story there in Commercial. But there's no reason why that GBP 9 million can't become GBP 11 million, GBP 15 million, GBP 20 million over the course of the next few years. Data Services, the products that we sell right now have been geared towards surveyors and towards lenders. And with the wealth of data that we collect, particularly on the demand side from users of the portal, it's looking to develop tailored products that use that data to increase the usage among commercial users of the site really. There's quite a lot of data out there on the supply side listings data that isn't necessarily unique to us, and our site does get scraped a lot. So it's the demand side data where we have a very valuable asset. And so for us, the opportunity is -- will involve focusing on that data and the users to whom that data would deliver some real value to their businesses, help them to make better informed decisions and make them quickly.

Can I just ask what the revenue model is at the moment for those 2 aspects on the Commercial side, the listings and search, and then on the Data Services side?

With listings and search, it's similar to the residential side. So free to list -- sorry, free to use to the seeker of property. And the owners of properties will list both directly and via our agents. With Data Services, it is a different model. So we have created specific products that we tend -- that we generally charge a license fee for, per annum license. And that can vary based on the number of desks within an institution that uses it. Sorry. Yes, inflation. Well, look, I mean, we're a digital business. So the extent of our exposure to inflation is limited primarily to salaries and to a few other areas that probably total GBP 3.5 million to GBP 4 million of annual costs that might have some exposure to inflation, largely around energy usage, data center hosting and storage, that sort of thing. Every year, we put through a cost-of-living increase for our staff. This year, we've -- well, sorry, at the back end of last year, in respect of 2022, we put through a 3% increase. The year before that, it was 1%. This year, that is a decision that we will take towards the end of Q3, early Q4. Given the economic backdrop, is it likely to be a bit higher than the -- certainly the most recent increases. But all in all, it's entirely within BAU for us, and I would expect it to have no more than a percentage point or so impact on the margin overall for next year. I think the overriding message is the limited nature of our exposure to inflation across the business.

Right. just quickly cover off your product questions, so new products, we launched -- we just launched in June to early adopter customers who are Optimiser -- so this is another Optimiser exclusive product. The product is called Native Search Adverts for estate agents. What's really exciting about that, it's the first time that we've allowed agents to use video on the platform and it's video talking about them. So there's been a real shift, and I think unsurprisingly, probably driven by all the social media that we all consume in short-form video. But one of the things agents are trying -- always trying to do is generate what they call instinctive trust with their vendors. So when a vendor is thinking about which agents to choose, they care -- we all care about who we're dealing with. Obviously, instinctive trust is a pretty tough thing to communicate with pictures and text. So video is coming. As I say, agents have started to do it. So that's why we've been holding off until they started to do it. I think also, because we're all exposed to so much short-form video, the quality is getting exponentially better. So Native Search Adverts was just launched. That's the new product for the second half, really in preparation for 2023 in terms of revenue. Between Essential and Enhanced, you may remember back in March, I talked about one of our near-term opportunities was getting more people onto our package ladder. So one of the things that we are experimenting with is a package that sits between Essential and Enhanced. And as you know, we spend a lot of time thinking about package names. So currently, it has a working title of Essential Extra. We'll see whether that lasts or not. But that's what that is about, is can we make a smaller step, if you remember the data, once we get people, they start -- agents start to see product. They start to see the value of the product. They typically then upgrade themselves through the package ladder. So that's what essentially Enhanced is about. In terms of 2023 ARPA, yes, you're right. I said last year -- start of this year that I thought sort of GBP 95 to GBP 105 is probably our cadence now. I would suggest that given all the unknowns and uncertainty, we'll probably be towards GBP 95 at the moment for '23. It would be my sense of where we would deliver, but I don't see that there are headwinds that would take us much below that. I think I say one of the things that I have huge pride in the team, we've delivered more products in the last 2 years than we have in the last decade. So we're really hitting in efficiency and innovation delivery. So I think that sets us up really nicely for that sort of ARPA growth next year.

And Catherine, just to add to Peter's point about product in between the packages, I think we've talked about this on previous calls. But it's quite a valuable line for us now as agents spend more on product before they upgrade themselves. It's running at about GBP 850,000 a month in revenue, which is up about 10% on this period last year. So it's quite material.

Will?

It's Will Packer from BNP Paribas. A couple of quick ones. Firstly, could we have an update on the timing of the new CEO? Is there anything you can share on that? And then secondly, could we just dig into the cyclicality of the Rightmove business and its end market a little bit? So I suppose, could you just remind us how you see the cyclicality of your relationship with agents and new home developers if there is a potential macro slowdown? Secondly, to what extent should we expect there to be weakness in the underlying market, depending on the macro context? And then finally, how should we think of your business today versus the last major recession in the financial crisis? What's different? Your monetization is further along, but maybe your market share of audience is higher, et cetera.

Okay. Good questions. The first one is easy. So a reminder, I've said that I'll see us through till post the '23 results in March. I haven't got anything to go to. So I'm still banking on that. The process itself is running according to schedule. So no news yet, but feel really comfortable. Talking about cyclicality. So if I zoom all the way out, it's quite interesting. Our New Homes business and our association business are semicountercyclical. What do I mean by that? Well, I guess we were experiencing it -- we've experienced it in the first half and maybe second half of last year. When the market is going really, really well, estate agents feel really confident and upgrade a lot. New Homes developers are selling a lot, so therefore, don't spend quite as much in marketing. And again, sort of huge pride in the team that we've moved forward New Homes ARPA, even though we have that situation. And obviously then, when the market switched, then you get a switch. So broadly, we've got this really nice in-built hedge. I'd love to say we designed it. It's just how the market is, so I can't claim that. The second sort of thing that I think maybe leads then to your third point in terms of how is Rightmove connected to the market, I think we've demonstrated Rightmove is only connected to the market at the very extremes. There's the very extreme good, which actually probably not as brilliant for us as you might imagine; and obviously, when it gets so bad that the agents go out of business. Really, those are the only places we're connected. The value in our product, both in terms of -- and indeed in our upgrade products, both in very strong markets and weaker markets, really shine through. And the product mix changes slightly. It actually probably changes less than you might imagine when we do the analysis, but the products have slightly different perspectives so agents can switch. Again, a brief reminder that our packages are minimum spend thresholds in which agents can choose the product mix that works for their current strategy. So what we see is that product mix alter between our products, but it doesn't actually make any revenue difference to us. In terms of the underlying macro, what are we seeing right now? I think we are seeing a sort of return to normalization, I think I commented in the presentation. Interestingly, I was talking to an agent. He was somewhat right. He said to me that, yes, we're now doing 20 viewings per property, not 30, but normality is 8 to 10. So the market in terms of demand is still strong. In terms of deals being agreed, it looks slightly ahead of 2019, so pre-pandemic. And I think this year, we'll probably end up at broadly sort of norms, so 1.2 million to 1.3 million transactions, something like that. So in terms of the underlying macro, I think we're okay for our foreseeable because that data that we use is really a 6-month predictor. I think the other thing in terms of estate agents, estate agents have had a really good 18 months. They've worked jolly hard. I think their pipelines are higher when we look at pipelines. So if you like, that's their visibility of revenue for the next 6 to 9 months, so deals that have been agreed that have yet to complete. That's about 1/3 higher than 2019. So that looks positive. And then as I say, when one costs out forward, it looks okay. I think that the macro, clearly, for some people is going to be really tough, is already, really tough. Probably worth remembering that broadly speaking, I think the number of forced transactions in the marketplace, as the estate agents politely call them the 3Ds, death, debt and divorce, that's probably about 100,000 transactions a year in that sort of baseline activity in the market that cannot be avoided. So we're not -- so we've never -- and post sort of '09, we've never really been so far ahead of that at 1.2 million. So we're only arguing actually about quite a small number of transactions which are discretionary. And actually then, when you look at the data in terms of affordability, there's some really interesting data in the housing market survey if you choose to go on a data hunt in terms of -- and actually then, when you look at the data in terms of affordability, there's some really interesting data in the housing market survey if you choose to go on a data hunt in terms of mortgage properties and the sociodemographic group they're in. And I think that maybe is worth investigating if one wants to think about what will interest rates do to the housing market. The summary answer is, I think then, we might see a slight reduction but not massive. Mortgage market review, which again, I shan't repeat it, but mortgage market review is really interesting in what it has protected the market from. It certainly brought down the number of transactions to 1.2 million, but borrowers are heavily stress tested. So your follow-up question, so now versus 2008, yes, we're clearly more penetrated in absolute revenue terms. We're still actually slightly -- embarrassingly, we're probably -- our share of agents revenue has probably dropped by a few tens of basis points in the last 6 months. So we're probably slightly under 6% of agents revenue now, which is good for that. But I think we're a much more sophisticated organization than we were in 2008. I absolutely believe our products are more valuable and more vital to agents. Our market share with consumers is higher. So I think now versus 2008, again, if we were to have a similar 30% of agents went out of business in 2008, so if that happens, that's going to happen. If that sort of market slowdown happens, that would impact us, but it's actually a slight slowing. And I think we're probably more resilient than we've ever been.

Just a follow-up on that. I suppose one differential is the extent to which packages are a part of your offering today. Do you see much of a risk of spin down in an event of a -- not sort of Armageddon but a slowdown?

I think it's a really logical question. And my data point would be March 2020, we didn't see a spin down, which I think from a -- certainly for all our perspectives was probably as close to Armageddon as any of us want to experience. And we didn't see spin down then. So I will use that as my data point for, I'm sure we would see a little bit but actually much less than you might imagine.

Sorry. Just following on from Will's question, Ciaran Donnelly from Liberum. What proportion of your agents now are sales-only agents versus in 2008? Or maybe you don't have that detail, but just broadly speaking.

So the data I did have, and I can remember, Ciaran, which nearly answers your question. About 60% of our agents now do sales and lettings. What changed actually post-2008, around 2008, it's only about 30% who did both. And what happened was through that process, sales agents realized, unsurprisingly, if I remember what was happening in '08, that lettings was a good, solid repeating revenue stream. So that recurrence from property management, agents still say that it pays the bills, and then sales can be the profit. So that -- I think that change has made agents a lot more resilient compared to that sort of period. And it's one of the things that has now reduced the number of sales lettings-only agents because they've only got one income stream, and they're fighting against what are normally considered to be more aggressive marketeers in the sales and lettings agents.

Yes. This is Pete again from Morgan Stanley. So a bit on the potential slowdown and the behavioral aspect of agents. Is it -- did I understand correctly that basically, the base case assumption in a -- like a modest slowdown is that there might be a slight downgrading of subscriptions or packages? Because -- I'm asking this because some other classifieds names in Europe are actually at least like introducing the idea that it might increase the willingness for agents to spend more because they need to compete more to create sales.

It's really interesting, Pete, in terms of psychology. So I think in terms of a moderate slowdown, we wouldn't see a spin down. I think in an extreme slowdown, one might. But I'd say, in 2020, we didn't. So that's pretty extreme. I think what's fascinating, if I describe what an estate agent might care about, right now, I think, fairly obviously, and we've talked about it a lot, when the market is really hot, as an estate agent, you want to win the next mandate from a vendor because that's going to sell, and that's going to make you money. So that seems pretty straightforward. What's fascinating is in a slower market, what an estate agent wants to do is they want to win the right mandates. So they want to win the mandates from the people who want to sell, who are pricing appropriately and not just testing the market. Because it's of no interest to an estate agent to carry properties with vendors who probably are going to be really awkward because they're desperately trying to get this really outrageous price for their property, which is never going to get achieved. So agents really care about winning the right mandates. So a mandate acquisition becomes as important, if not more important. And then, of course, the products that we have, which help them sell properties, get more interest, drive up price, become really interesting. And agents also then use them to help those vendors who maybe are a bit sticky on price and don't want to reduce. So they can use that to say, let's relaunch and let's relaunch with a premium listing or a beach property. So yes, I think in a moderate slowdown scenario, absolutely, the chances are upgrades would probably increase. I was absolutely referring to that tough situation. Thanks.

Fon Wassachon from RBC. Just a few questions from me, please. The first one, on ARPA growth of GBP 95 that you mentioned. Could you help us think about what will be the main growth driver for that GBP 95? Would the majority still be the product and upgrade as we observed in the first half? And following your introduction of Essential Plus, do you observe any appetite for an opportunity to introduce maybe a more premium package versus Optimiser 2020?

Thanks, Fon. So what will drive GBP 95 next year? I think it will be the same sort of combination, that proportions might shift from the 60-40 we are at, up or down a few percentage points. But I think it will still be mainly products, to answer that question. In terms of, yes, Essential Extra, we're just testing it right now. That's interesting. There's clearly an opportunity as well beyond Optimiser at the top. At the moment, I think we captured that really nicely. As Alison said, because there's a minimum threshold, we see lots of customers spending over that. So that's definitely -- there's definitely an opportunity there. It's just not one we're particularly focused on because the package structure already helps those agents spend more money on products. But I wouldn't rule it out.

We go to questions online. We have a question from Lisa Yang, Goldman Sachs. "You have cost guidance of 25% to 26% of sales. It was 25% to 27% at the FY '21 results. Can you please provide some detail what's driving that? And how are you preparing for a macro downturn? Have you taken any actions or intend to take any actions on certain cost items?"

Okay. So yes, in our RNS from the March full year results, we had cost guidance for this year of 25% to 27% of revenues. We're bringing that in slightly now, given that we're halfway through the year. We just have better visibility on costs for the year. So there's nothing really more to it than that, limit -- very limited impact beyond that for the rest of this year. And then as we think about next year and the impact that inflation is likely to have on the cost base, again, we're pretty shielded, given the nature of our business, from dramatic impacts. But of course, we will have some, and we're already gearing up as to how we think about that, particularly in relation to salaries. But we have a lot of discretionary costs that we can then use to manage any costs that might get out of alignment with the plans. Our ambition always will be to have an impact of no more than 1% or so on margin and to maintain a broadly stable margin of that sort of 73% to 75% level. So within that, there are actions that we can take, and we will look at that. Those are primarily in the use of contractors in our product development teams, the extent to which we maintain those. And marketing spend would generally be something that we might look to think about how we might tailor it. But as things stand right now, we don't see the need to take any of those actions, but they're there in the tool kit if we were to need them.

And just to follow on from that one, you're cautious about money, as we are. You're cautious about money in the good times and the not-so-good times. So I think we haven't lost the muscle of being cautious about money. So that just continues.

A question from Silvia at Deutsche. "Please can you remind us of the incremental differences for agents who upgrade to Optimiser from Essential and Enhanced? And where do you see the penetration of Optimiser going in 2022 and beyond?"

2022 and beyond, right. So the -- what are the differences? Fundamentally, it's access to more of our products, which help you win more vendors. That's what the package structure is. As I say, it's -- they are minimum spend thresholds. So on Optimiser, you're spending more on our product. There are 2 now exclusive products in the Optimiser. There's the Sold By Me product, which we've talked about before, which is -- allows you to advertise the properties you have sold to people who are buying. It also uses smart targeting. So it advertises them to people where they live, not where they're searching. And then the new video product that I talked about, Native Search Adverts, that is also exclusive to Optimiser customers. And then thirdly, there's an exclusive tool, which is called Opportunity Manager. And what that does is it helps agents think about people who contacted them as buyers and how likely they are to be sellers, which is really important because that's a great source of lead for agents. But again, particularly in this marketplace, it's quite different -- difficult for them to distinguish whose actually not got a property to sell, whose properties are already on the market, so therefore, not accessible to them as a potential customer. And Opportunity Manager leverages the behavior [ related ] that we have when people are searching to help agents think about who are the most likely people to be sellers in there. So those are 3 exclusive things, but what it does generally is it gives you more access to all our product set.

And just a reminder that the revenue, the ARPA uplift for a customer who would move directly from Essential to Optimiser is about GBP 550 a month of incremental ARPA. And we had about 200 of those in the first half. It reduces a little bit as agents move from Essential to Optimiser. So that was an uplift of about GBP 350, and we had about 300 of those. And then the remainder of the upgrades to Opti 2020 came from the cohort that had previously been on Optimiser 2015.

And maybe just to cover off that last point, where might this go to. I think one has to think now in 2 ways about where Optimiser might go to. So overall, I think we'll see more Optimiser customers. But also, one of the things that we're aiming to do, and you can see it in those numbers that Alison talked to, the number of Optimiser customers who are spending well beyond their threshold. So if you are moving off the top of the package data, which might encourage us to follow Fon's advice, we also see that number increasing and maybe getting close to adding another couple of thousand customers spending over the top of that threshold. That's a really interesting arena for us in the next few years.

Question from Adam Berlin, UBS. "Is there any sign of increasing number of sales falling through as mortgage affordability becomes more challenged?"

Yes. We're seeing -- we've seen fall-throughs -- as I noted in the presentation, we're seeing fall-throughs tick up a little bit, but it's really not material. They're still very low and very low in contrast to the number of sales being agreed. What we don't know, of course, is whether those fall-throughs are about mortgages. When I talk to major customers, they don't see mortgage availability as being a significant hurdle to doing deals, and they're living it every day. So I don't think mortgage availability is an issue.

That was it for questions online, unless anyone else has any more.

That's lovely. Well, thank you, and have a lovely weekend.