These stocks have the best margins in the FTSE 100, but are down 42% on average
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Rightmove (LSE:RMV) and Auto Trader (LSE:AUTO) were among the worst performing stocks FTSE 100 on Tuesday (February 3). This compounded the poor performance of the past few months. In fact, in the last six months, Rightmove is down 45% and Auto Trader 40%.
So, what happened?
AI too
Auto Trader experienced some pushback on its Deal Builder product and reported cancellations and downsizing of some of its members. However, the biggest problem for both companies is AI.
Both have been investing heavily in AI, and continue to do so, but we are at a point where the market is looking at AI winners and AI losers.
For many, it’s hard to look past the likes of ChatGPT, Gemini and Anthropic as winners.
That creates a difficult backdrop for vertical markets.
While Auto Trader and Rightmove use AI in pricing, search, and lead qualification tools, this is an incremental improvement rather than a category-defining breakthrough. The danger is that such investments are viewed as hedging, or worse, table stakes.
And the press release from Anthropic about its official plugin – it released 11 new plugins on January 30th – was the straw that broke the camel’s back to some degree.
The press release highlighted that the official plugin can do a lot of complaint work such as reviewing legal documents and NDAs. But the implications are broader than that.
It’s about the growing capabilities of AI. In the classification field, AI will be able to obtain unstructured data directly from real estate agents or car dealers. And that will represents a big change.
Creates a new proposition for agents, dealers, and potential auto/home buyers. In this context, Auto Trader may find itself in direct competition with Anthropic, for example. And while Auto Trader may argue its good value, Anthropic search may be a fraction of the cost for dealers.
A positive spin
Consumers are notoriously slow to change behavior, especially for high-priced, non-standard items such as cars or homes.
That nonsense continues to work for those in power. Despite the hype surrounding AI disruption, consumers are still defaulting to platforms they trust, understand, and are familiar with.
This happens especially to those who buy houses. You really want to see everything on the market before buying a new home. When it comes to cars, you probably know you want a white one Tesla.
If so, an AI chatbot might be effective in finding all the white Teslas on the market. It can filter data from private car dealers and present it to you.
However, if you are not sure and want to browse the options, the interaction of the marketplace can be chosen.
Sadly, I don’t have a crystal ball. But the proportions must be observed.
Rightmove now trades at around 14.2 times forward earnings despite having a 66% operating ratio. Auto Trader is still cheap at around 13 times the lead with a margin of 63%.
For now, both companies are growing earnings, but it will be interesting to see how they evolve. Stocks, I believe, are still worth considering, but they come with a lot of risk attached.
