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Meerkats v robots: comparing the Comparethemarket.com market

Meerkats v robots: comparing the Comparethemarket.com market
July 20, 2016
Meerkats v robots: comparing the Comparethemarket.com market

In the core motor insurance market, two-thirds of new sales now come via PCWs (see graph). This rise to prominence is soon to be reflected in equity market activity. Esure (ESUR) is considering a demerger of Gocompare.com (opera singer with silly moustache), having appointed a new chief executive for the business. Analysts posit a market valuation of around £455m, compared with the £190m total implied when esure took full ownership last year. BGL Group, the privately owned parent of the all-conquering Comparethemarket.com (meerkats), is planning a float expected in the first quarter of next year, with a £2bn valuation expected.

 

Elsewhere, Admiral (ADM) is currently keeping its hands on Confused.com (robot). It has previously considered a sale of the business, but the customer data and insights provided by the business are currently making up for recent challenging trading. But successful detachment of GoCompare.com and a decent float for BGL could make it reconsider. "My gut says that if one of them does it then the others will do it, depending on the results," says Jason Hulott, business development director at insurance-focused digital marketing company Speedie Consultants. Epic strutter Moneysupermarket.com (MONY) has long been a listed player.

 

These are the big four, with the meerkats leading the merry band, according to Peel Hunt estimates (see chart above). Also meriting a mention is uSwitch, the energy-focused PCW owned by Zoopla (ZPLA). The total revenue of the mini-sector is estimated at £800m, again on Peel Hunt figures, which is forecast to grow to £1.4bn in the medium term. Half of this growth is expected to come from the burgeoning energy segment, with most of the rest coming from money and more modest growth in insurance products.

But the market's challenges are growing with it. The forecast economic slowdown next year has cast minds back to the problems faced by the PCWs - felt by investors in Moneysupermarket (see chart below) - as loan providers went to the wall in the financial crisis, hitting sites' referral and advertising revenue. But these businesses are now more diversified, and Brexit does not pose the same existential threat to global finance as the sub-prime crash did. Indeed, there is an argument that these businesses should do well when times are tight. "From the consumer point of view, price comparison websites are countercyclical," argues Peel Hunt analyst Malcolm Morgan.

 

A challenge that certainly grows with market size is regulatory oversight. This is complicated in that the comparison business cuts across the energy, insurance and lending sectors. The Competition and Markets Authority is currently considering whether to investigate collusion among PCWs regarding online search advertising, with a decision expected in August. Otherwise, the regulatory mood is broadly favourable: for example, the recent energy market review proposed allowing exclusive deals between providers and PCWs in order to encourage competition between the platforms - with Citizens Advice providing a platform where all tariffs can be found. But sharp practices will not fly: a 2014 review of motor insurance demonstrated that regulators will not accept "favoured nation clauses", which stop insurers making their products available more cheaply on other platforms.

Do price comparison websites benefit consumers overall? A recent paper from Warwick University argued that the introduction of a single PCW actually increased prices for consumers, as referral fees offset the advantage of competitive pricing pressure. On the question of their utility, these websites are currently winning the argument. But a clear advantage of demerged PCWs will be firmer, comparable data on market share, margins and distribution spend that will allow us more effectively to compare the market for their shares.