Is property website Rightmove worth buying into?

Property website Rightmove.co.uk plans to float next month. But with shares looking expensive, is now the time to buy into the company?

Property website Rightmove.co.uk plans to float next month, selling 25% of its equity (the minimum required by the stock exchange). No new shares will be issued, but the move will give it "greater independence and flexibility to raise money in the future", managing director Ed Williams tells the Daily Express. Its strategy of letting customers (estate agents and developers) invest up to £3,000 per branch or development is also "a clever way" to persuade customers to stay loyal, says the FT.

There's no doubt Rightmove has been an astonishing success, says Dan Sabbagh in The Times. It's the UK's ninth most-visited website, has three-quarters of the online property advertising market, and is used by two-thirds of the country's estate agents, who use it to advertise a total of around 660,000 properties.

And there's more to come, says Andrew Gowers in The Sunday Times. Rightmove still has a third of Britain's 13,500 estate agents to get on board, and another £350m worth of the £500m national residential-property advertising pie to steal from the print media. It also plans, says Sabbagh, to "take advantage of the requirement for homesellers to produce home-information packs next year" and expects to win at least 20% of a total market worth £1.5bn. Depending on margins, that could generate operating income of about £50m within a few years.

There are risks, says The Guardian. Rightmove's business plan could "crumble" if true "disintermediation" of the property market takes off (ie, people stop using brokers altogether). Also, the mooted valuation of £400m doesn't look cheap, equating as it does to a p/e of 50 times expected earnings for 2006.

Still, it's not as bad as it sounds, says Ben Harrington in The Daily Telegraph, given revenues and operating profits grew by 98% and 211% respectively last year and underlying margins are 48%. It looks "worth investing in", says Sabbagh.

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