Are Rightmove shares cheap after an impressive 2022?

Move right Shares (LSE: RMV) fell on Friday despite some fairly positive earnings data. The stock was down 2.5% in morning trade, meaning the company is now down 18% over the past 12 months.

The UK housing market may not be particularly strong, but Rightmove is not directly affected by house price fluctuations. Instead, the company makes money from monthly subscription fees paid by customers to advertise all properties on the site and other advertising revenue.

So, is this what stock investors should do? It’s definitely something I’m considering.

Resilient traffic

Rightmove runs the UK’s largest online real estate property portal. But amid one of the most challenging periods for the housing market in more than a decade, Rightmove has published its full-year operating profit.

The company says it has seen “resilient traffic despite less frenetic property market than 2021″.

Operating profit rose 7% to £241.3m, with profits 9% higher at £332.6m. Earnings per share rose 9% to 23.8p – suggesting a price-to-earnings of 22.9 – and the total dividend for the year was raised by 9% to 8.5pa a share. The yield is still below 2%.

People used a collective total of 16.3bn minutes on the platform during the year. That’s down from 18.3bn in 2021 when the housing market was in overdrive, but 34% higher than 2019’s pre-pandemic record.

Strong client growth

There is positive news on earnings as well. The platform owner said that customers continue to upgrade their packages and increase their use of digital products.

This is reflected in the revenue per advertiser, which increased by 11% to £1,314 per month. This is the second highest year for ARPA (average revenue per advertiser) growth.

“While we remain alert to economic uncertainty, Rightmove is not materially affected by property market cycles, except in the most extreme circumstances.“, the company said in a statement.

What about the future?

In the near term, there are some positives to look at. First, the company says that it is not affected by the cycle in the property market, but that interest in the sector determines site visits. While home sales are slowing, the rental market is on the rise in many parts of the country. And, of course, Rightmove also offers rental advertising.

The company also said that strong ARPA growth in the second half of 2022 gives it increased confidence for ARPA growth in 2023. Rightmove expects customer numbers to follow the same pattern as in the second half of 2022.

In general, the fundamentals are very positive. The forecast is for an underlying operating margin of around 73% this year – huge. It has a strong balance sheet, impressive cash generation metrics, and a buyback program that should boost its share price in the coming years.

So, should I buy Rightmove shares? Those metrics are impressive, but I’m not sure how the company is giving it such an expensive price-to-earnings ratio. Also, I’m not sure where the growth is coming from, because the company has dominated the space it’s in.

I’m going to keep an eye on this, but I’m not buying it right now.