Rightmove PLC (LON:RMG) has been downgraded to ‘sell’ from ‘hold’ by analysts at Berenberg, who warned that a backlash from agents could mean the platform will struggle to increase prices “ever again” from discounted levels.
In a Thursday note in which the target price for the house listing website was also cut to 385p from 400p, the bank said agent backlash against Rightmove had “increased markedly, with the “Say No To Rightmove” campaign gaining traction”.
READ: Rightmove extends agency discounts until September taking a £17-20mln revenue hit
“Many agents are angered by Rightmove’s initial response to [coronavirus] and are reluctant to pay the full price ever again. We believe Rightmove’s substantial discounts (a likely response to this initial backlash) – recently extended until the end of September – are now exactly the right solution and admire the company’s management team for thinking about medium-term value preservation. However, we believe not only that there is a high chance that some level of discounting will continue until the end of this year, but that it will be near-impossible for Rightmove to return to the same level of price increases achieved in the past without an agent rebellion”, Berenberg said.
The broker added that they expected these discounts to exert “significant pressure on future revenues and margins”, and that the current valuation did not reflect these risks.
Analysts said that the biggest risk to their assessment was any “significant government stimulus – such as a stamp duty holiday” which could help boost the property market, raise the morale of estate agents and potentially “paper over the cracks” of the dispute over prices, although Rightmove’s ability to raise prices would “remain under threat”.
Shares in Rightmove dropped 4.1% to 530.8p in late-morning trading.