The future of online estate agents looks bright, according to JP Morgan, and that could spell bad news for property listings site Rightmove PLC (LON:RMV).
The US bank has initiated coverage on Purplebricks Group PLC (LON:PURP), the market leader in the UK among online agents, with an ‘overweight’ rating and a price target of 733p.
READ: Rightmove has brokers sitting on the (picket) fence
The shares currently trade at 422p, up 4.5% on the day.
Online players benefit from low fixed costs, as they do not have to maintain a presence on the High Street, and labour costs are more variable, as affiliated online agents tend to be self-employed.
JP Morgan (JPM) believes the average fee for online agents is about 70% lower than for traditional agents.
Increased market share?
It reckons Purplebricks market share in the UK is currently around 6% and is set to increase to at least 15% by 2022. The group is also looking to export its model to Australia and the US.
The success of online agents is reducing the cost base and driving productivity in the estate agency industry and JPM believes this will most probably lead to reduced commissions for traditional agents in an environment already made tougher by the whole Brexit situation.
The bank appreciates that Rightmove is not an estate agent and that property sellers will look to cut costs elsewhere before they cut back on their presence on the number one property listings site, but it sees little scope for meaningful increases in average revenue per agent and has, therefore, downgraded Rightmove.
Shares in Rightmove were down 2.5% at 4,448p, versus JPM’s price target of 4,168p.