(Please note that this is automatic translation from a Finnish language)
The portfolio of the HCP Focus fund underwent a change of company in the first quarter of the year. We sold the longest holding ever, Amazon, out of the portfolio. It was in the fund for more than a decade, since the foundation of the fund.
We consider Amazon to have matured as a company so that the time of its most attractive growth potential is behind us. The “winner-takes-it-all” theme is an essential part of the strategy of the HCP Focus fund. In recent years, regulators have also woken up to the problem of the supremacy of technology companies, which arises from the same theme. This has brought new risks to the largest technology companies, including Amazon.
The fund’s new portfolio company is also the superior market leader in its own region. There, too, the idea that the winner takes it all comes true. It is considerably smaller than Amazon and has more runway for growth ahead. Next, we present this interesting platform company from the UK.

The UK’s leading housing market platform company
The quickest way for a Finnish investor to catch up on what Rightmove is doing is to think about the Etuovi and Oikotie services. Rightmove offers services to parties involved in rental brokerage and housing transactions. The company has a crushing 85% market share in the UK.
On Rightmove’s portal, you can find offers for rental apartments, owner-occupied apartments and commercial properties, as well as for many other countries in addition to the UK today. In addition, the service provides information on the state and trends of the housing market. The House Price Index maintained by the company is the UK’s most accurate predictive housing price indicator. You can also do a price evaluation of your own apartment through the service, as well as apply for a mortgage.
The company can be said to be one of the key elements of the UK housing market, where almost every Brit goes when looking for a new property or renting out their own apartment. Rightmove has managed to take the best place in the industry with successful branding, being one of the first operators and continuous product development.
A delicious business model
Rightmove’s customers pay subscription fees, which are the company’s main source of income. In particular, real estate brokerage companies are its important customers. Rightmove also charges for additional visibility, sells advertising space on the portal, sells the housing market information it collects to brokers, insurance companies, mortgage lenders and local authorities, and receives a commission for completed mortgage applications and arranged house price estimates through it.
Almost three quarters of Rightmove’s turnover comes from real estate agents. The company’s second largest segment is New Homes, which practically means the new production of apartments. In the past, when the housing market was hot, developers were able to sell new properties quickly without help. The quiet market has recently caused developers of new properties to resort to Rightmove’s help to an ever-increasing extent, when the properties need wider visibility to help sales, which used to happen on their own.
Rightmove’s business is not as cyclically sensitive as the housing market. The broker may do worse during the quiet period, but you still have to pay Rightmove for the apartments on the list if you want to keep them on display. Since Rightmove is the overwhelming market leader, there really isn’t any other option. In fact, the bigger the inventory of unsold and unrented that brokers have, the better for Rightmove. On the other hand, when the market is pulling, high inventory turnover is also good. Only when the situation gets so bad that brokers are forced to cancel does the state of the housing market begin to be reflected in Rightmove in the form of a larger decrease in customer numbers.
Rightmove’s description of the company’s network effects
Rightmove is a platform company that benefits from network effects. In that sense, its business is simple to understand. The more paying users the platform has and the more payments can be collected from them, the better for Rightmove. When both grow at the same time, the effect is expotential.
Average monthly revenue for advertisers in the Agency + New Home segments
Number of paying customers of Agency + New Home segments
In recent years, there has been no significant development in the number of the company’s paying customers. It has remained quite stable. On the other hand, there has been considerable progress regarding the monthly fees charged. The company has been able to increase average monthly charges by more than 30% over the past four years. Last year, the average customer paid Rightmove £1,314 a month.
The company’s competitive advantage is said a lot by the fact that, although many brokers consider Rightmove’s monthly charge high and the grumbling about it can be read on the Internet, the company has been able to systematically increase the platform’s fees almost year after year. Mostly, the corona year 2020 can be seen as an exception that confirms the rule. At that time, the company gave discounts to real estate agents in order to keep even smaller customers.
Rightmove is a financially strong company. It is debt-free. The company has a strong ability to generate large amounts of cash through its business operations, which is explained by its business model. Margins are tight, which is also reflected in the company’s balance sheet.
Downwind of megatrends
The company’s network effects or good business model alone are not a basis for the HCP Focus fund’s investment decision. In order for the company to be able to take advantage of these, there are also growing megatrends that will ultimately enable successful growth. “Riding” megatrends also gives a natural tailwind to business and makes almost everything a little easier than the setting sun in industries.
The most obvious megatrend in Rightmove’s case is digitalization. Digitization has helped Rightmove gain popularity in the rental and housing markets. Today, more than 95% of home seekers use real estate portals, and for good reason: internet real estate agents have brought real estate brokerage costs down considerably. The portals also make searching and applying for suitable housing options both more efficient and easier. Thanks to digitization, real estate portals can now also be found in everyone’s pocket – on a mobile device. Rightmove also has its own mobile application, which the company is actively developing. In fact, more than 70% of the platform’s visitors last year were users of Rightmove’s application or mobile-optimized page.
Another strong megatrend is urbanization and demographic change. People’s desire to move to cities helps real estate portals like Rightmove to increase their customer base, when the competition in a centralized area intensifies and the benefit of real estate portals increases in the same context. More and more people live alone these days and the structure of the population is getting older, making city living and the acquisition of studio apartments more desirable. This has partly led to the growth of the rental market, from which real estate portals benefit greatly.
New CEO and committed staff
All Rightmove personnel own company shares. If we are precise, then more than 99% of the personnel are company owners. In December 2022, Rightmove introduced the SIP (Share Intensive Plan) reward model, in connection with which each employee received 500 company shares. It is possible for every employee of the company to join SIP.
In addition, Rightmove uses a voluntary model called SAYE (Save As You Earn Scheme – Sharesave) to engage personnel. As the name suggests, in this model, the employee can save from his own salary for the company’s options, which entitle him to acquire shares up to 20% below the current market price, which was when the employee joined the model. Options must be held for at least three years, after which the shares can be sold and taxes paid on them. If the options are held for more than five years, the shares can be sold tax-free. Every employee of the company is entitled to join the savings model. At the end of 2022, more than 68% of Rightmove’s personnel saved SAYE from their own salary.
We like Rightmove’s way of making employees part of the company’s owners. It also resembles our HCP operating model, where every permanent employee is also a shareholder. Committed, motivated and satisfied personnel are an important part of the company’s success. According to the staff satisfaction survey, 87% of employees think that Rightmove is an excellent place to work.
Rightmove got a new CEO in March. The previous CEO, Peter Brooks-Johnson, worked at Rightmove for 17 years. Peter served as COO since 2013 and as CEO for the last six years.
The new CEO, Johan Svanström, came from outside the real estate industry. Before joining Rightmove, this Swede worked at the EQT Partners investment company and has a long experience at Expedia, where he was responsible for e.g. the Hotels.com brand. Svanström has good experience working on the board of various companies and has sat on the board of Wolt and now Rightmove, for example.
At Expedia, Svanström was one of the company’s first employees in Asia, where he led the establishment of the company’s operations on the continent. He joined Expedia after McDonald’s, where he led several successful large projects in the company’s digital innovation group, and previously held CEO and leadership positions in several telecommunications and internet startups. Johan has several years of experience as a board member of public and private technology companies in several countries.
In the HCP Focus portfolio management team, we have a positive attitude towards the CEO change. We believe that Johan will be able to renew and develop Rightmove with fresh views from the technology sector and digitization. The coming years will naturally show how well he succeeds in the task, but we think the background is excellent and believable, so that all the ingredients are there.
Risks
No share investment is without risk, and Rightmove is no exception. Although we like the company and see its future as bright, many things can still go wrong. There are clearly identifiable risks associated with Rightmove as well, which we keep an eye on.
First of all, although Rightmove has started to offer its services to other parts of Europe, the United States, Turkey and Thailand, the company is currently very dependent on the UK. The kind of economic situation in the UK has an effect on consumer confidence and behavior, which is reflected in trading volumes and thus also ultimately in the company. Although we believe the company’s business can tolerate changes in the UK real estate market reasonably well, it is by no means immune to it.
Real estate markets are competitive. The barriers to entry into the industry are low and the margins are good, which can attract new innovative players or tighten competition for platforms that are already operating. Rightmove’s biggest advantage by far is its clear market leadership. Although other platforms can have bloody competition with each other, Rightmove’s platform is almost a must, because that is where the majority of consumers head. Losing market leadership would have far-reaching effects, starting with the company’s pricing ability.
The rapid change in technology can affect Rightmove. The company must invest in product development and introduce new technologies to remain competitive. The way consumers search for information may be different in the future and the industry’s business model may change. A disruptive actor can surprisingly quickly destroy Rightmove’s business if the company is unable to stay on top of the wave.
Due to the company’s business, it is highly dependent on various IT systems and information security. Cyber-attacks can render the platform unusable and a data breach can endanger the safety of users. At worst, a breach of security can lead to a complete loss of trust in the company, which could bring down its business very quickly. Rightmove must be able to keep its platform and back-end systems operational, which requires continuous investment.
The company’s success depends on the right kind of competent personnel. In this regard, the company has recovered excellently over the past year and is currently one of its smaller risks. If the share price dives and the means of commitment stop working, Rightmove must be able to react in order to keep hold of competent staff. Any internal problems, such as if staff turnover were to increase significantly or administrative errors would occur, would all have an impact on the company’s business.
In addition to these, there are naturally also numerous unrecognized risks that can unexpectedly affect the company.
Summary
Rightmove is by far the UK’s leading housing market platform company. It benefits from network effects and makes a good profit with a high margin. The company is debt-free and its personnel is strongly committed to operations. At best, the new CEO can act as a catalyst for the company’s renewal. The megatrends of digitization and urbanization, as well as demographic change, give a tailwind to business. Regarding the valuation of the company, we rely heavily on the EVA model in the portfolio management team of the HCP Focus fund, which also supports the investment decision.
This kind of a company is Rightmove, the latest entrant to the HCP Focus fund.
Pasi Havia
Portfolio manager of the HCP Focus fund
This article is intended to introduce Rightmove in a general way to clients of the HCP Focus fund. This is not an in-depth analysis, nor is it intended to be. At HCP, we have separately produced analyzes of the company for internal use to support the investment decision.
Rightmove lubricates the UK housing market May 9th, 2023Pasi Havia