Rightmove (LON: RMV) shares are down 11% this morning. The problem for RMV shares is not that there’s something gone wrong within the business. It’s that the competition just got bigger, badder and better financed. This is not something any company wants to see coming up behind it. This is especially so with such things as online portals. For there are network effects here and while the protect the incumbent and leading market positions they only do so while that position is indeed leading. If anyone manages to overtake then those same network effects drain the business.
The specific announcement is actually about OnTheMarket: “The board of directors of CoStar UK Limited ("Bidco"), a wholly-owned indirect subsidiary of CoStar Group, Inc. ("CoStar"), and the board of directors of OnTheMarket plc ("OnTheMarket") are pleased to announce that they have reached agreement on the terms of a recommended cash offer to be made by Bidco for the entire issued and to be issued share capital of OnTheMarket (the "Acquisition").” OK, that’s at 110p in cash and the shares have risen to reflect that.
This issue for Rightmove though is this: “Bidco and CoStar believe that the Acquisition represents an attractive strategic entry point for CoStar into the UK residential property market. CoStar has invested billions of dollars into building the world's leading online property marketplaces, generating hundreds of millions of leads, resulting in millions of successful commercial and residential property transactions for its clients. CoStar's websites attracted approximately 280 million visits in September 2023, and include Homes.com, the agent-friendly, second largest and fastest growing residential marketplace in the United States.”
Rightmove share price from Google Finance
Rightmove now has - or very soon will - an aggressive and well financed competitor trying to bite its fundament. Now, it’s not obviously true that the CoStar/OnTheMarket combination will actually succeed. But that’s not quite the point. The competition will create costs - greater advertising for example - in order to try and stave off that competitor. Whether CoStar succeeds or not therefore isn’t quite the point - Rightmove’s prospects have just dimmed.