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OPINION

Room for two? Zoopla rises to Rightmove challenge

Room for two? Zoopla rises to Rightmove challenge
June 25, 2014
Room for two? Zoopla rises to Rightmove challenge

But is there enough room for two companies offering broadly the same services? One thing remains clear, the shift to using online services is inexorable, and the advantage will go to the operator that provides a more comprehensive service. Zoopla wants to embrace a cradle to grave relationship with customers and stimulate the sort of brand loyalty that comes with providing an inclusive service. Some examples of this include offering a comprehensive facilities package on potential properties, such as schools in the area, crime rates and local hospitals. There are even plans to initiate a search by commute time. But these are easily replicated, and Rightmove already offers much the same package of value enhancing add-ons. Indeed, it could be argued that the Zoopla model has been built largely on what Rightmove is already doing. Both companies are also offering a range of entry points using mobile devices, and in both cases around a half of all the traffic is generated through hand held devices.

But valuing the two on the range of performance related metrics is not as easy as it seems. Rightmove, for example, has the most page impressions at 80m per month, double that of Zoopla. But Zoopla will claim that’s because visiting Rightmove’s site requires going to many more pages just to get the information needed. Rightmove delivered 15 per cent growth in average revenue per advertiser last year to £607 per month; Zoopla collects around £300 per month, although it hopes to build on this as advertising revenue starts to grow. Even so, for an estate agent advertising say, 60 properties, it is hard to see where it can get better value than a basic £5 per property.

In the current climate, with demand for housing generating plenty of customer enquiries, there is room for organic growth as the number of estate agent and letting agencies grow. But increasing market share has limited upside, with both sites claiming to have around 90 per cent of agents already signed up. The opportunity to grow revenue is strong though; around half of all property advertising is still channelled through conventional media. Other areas for expansion also offer potential, notably commercial and retail property, and while services are provided for UK customers to buy abroad, there are no plans to tap into overseas domestic markets, where local coverage is already pretty well sewn up.

Zoopla started out as a valuation tool for people wanting to know the value of their property but has since expanded by acquiring a number of smaller property portals. Most recently it bought the Digital Property Group. And it remains the smaller of the two. Revenue in the year to last September for Zoopla jumped to £64.5m from £26.8m in the previous nine months, generating adjusted cash profits of £29.4m. Turnover at Rightmove climbed 18 per cent last year to £140m and pre-tax profits were up 17 per cent at £87m. Both are highly efficient at generating cash, and given the low level of working capital requirements, cash conversion in both cases is around 100 per cent. And neither has any debt.

For the estate agents and letting agencies, having two major advertising platforms presents a problem because it would be hard to justify the marketing logic of appearing on one website and not the other. But estate agents are still spending less on advertising now than they did before the financial crash.

Online property agencies are pretty much a play on the exuberant housing market; that’s good news for now but not so good when markets start to level off. The shift from print advertising is set to continue though, and there is plenty of scope to cash in on the commercial and retail real estate sectors without too much fear of a downturn for the next couple of years at least. Choosing between the two companies is difficult because in the broadest of terms they offer the same range of services. Historic earnings data are not available for Zoopla, but shares in Rightmove are trading on 24 times forecast earnings. That valuation may look stretched, but with an inexorable shift away from advertising in print, the growth profile for both companies looks strong.