RBC Capital upgrades Rightmove, says share price slump was an 'over-reaction'

(Sharecast News) - RBC Capital Markets upgraded Rightmove on Monday to 'outperform' from 'sector perform' but cut the price target to 775p from 805p after the shares fell sharply on Friday as it warned that increased investment in technology and AI would weigh on profits. "We think the market has it wrong," RBC said. "Rightmove is not broken, it does not need fixing, however the investments announced today if executed well, should lead to a better bigger business in the years to come."

The bank said it reckons the share price move was an over-reaction to the announcement of Rightmove's decision to accelerate its investment into AI.

"As we mentioned in our note Friday morning we see this as Rightmove putting the money it generates to work, investing today to create higher shareholder returns tomorrow," it said.

"The margin will move down during the investment phase, but there can be no gain without a bit of pain, and we cannot think of another company that would be able to say that there trough operating margin will be 67%... do let us know if you find a higher trough."

RBC noted that estate agents will keep paying their subscriptions and homebuyers will keep looking at Rightmove's website following the announcement on Friday.

"Customer and consumer behaviour won't change, but if the plan works Rightmove will end up changing the game by offering more products and services to estate agents, housebuilders and other home moving related services providers (there by growing revenues) and offering the end user more tools and toys to keep them coming back for more (strengthening further the network effects that underpin Rightmove's success)," it said.

"There are also risks that AI could replace Rightmove, but in that case surely it's better Rightmove is in the game than watching from the sidelines.

"We also would suggest that it if the last 25 years teach us anything it is that it will be harder than the bears think for estate agents, housebuilders and homemovers to be weaned off Rightmove, or to kick their Rightmove habit."