Should OnTheMarket throw in its lot with Rightmove? The question arises after staring in awe at the half-year profit reported by the latter listings site on 27 July. Profit jumped by 21% to £80m on turnover up 16% to £108m. Rightmove has reported margins of over 70% since March 2006, when the company floated. Since then, £660m has been returned to shareholders. Rightmove’s market capitalisation today is £4bn. Number two, Zoopla, is valued at £1.2bn. Good old Savills is valued at £1bn, based on its share price.
Information supplied free by agents has created two companies in 10 years with a combined value five times greater than Savills. That £660m shareholder bounty from Rightmove was of course garnered mostly from 20,000 agents and developers charged for displaying their wares. Little wonder that a group of agents decided to launch a competitor in January 2015.
OnTheMarket has a five-year operating licence granted by its founder/funding partners, including Savills and Knight Frank. The plan: to “reach the scale of Rightmove and Zoopla” by 2020, but to charge out the service “at cost”.
The first-year target of signing up 5,000 offices was met. There are now 7,000 outlets in membership, up 10% since January. But a survey of three towns – Newbury, Leamington Spa and Carlisle – shows that Rightmove and Zoopla had far more listings. OnTheMarket outguns Zoopla in Harrogate, Cobham and Llandudno, but, either way, users who discover a search does not include all that is on offer tend to switch allegiances. Ask Rupert Murdoch, who bought erstwhile Facebook rival Myspace in 2005 for $580m and sold it in 2011 for $35m.
I suggested here on 4 October 2014 that OnTheMarket’s “prime directive is to clip Rightmove’s astounding 74% profit margin and to weaken Zoopla”. In the first half of 2016, Zoopla made £40m profit on £96m of sales. Turnover was up by 130%, boosted by the £160m acquisition of energy comparison site U-Switch. But income from 13,000 agents was down by 11% to £29m.
Zoopla was weakened by around 5,000 defections to OnTheMarket, which obliges members to subscribe to only one other site. That said, Zoopla remains a healthy gorilla in the property room. “The sector presents multiple opportunities for further growth and monetisation,” boasts the annual report.
Twenty months into the 60-month experiment to curb Rightmove and Zoopla, it is not looking rosy for Agents’ Mutual. The not-for-profit company behind OnTheMarket has dented Zoopla’s ambitions and sent it careering into the risky territory of energy price comparison sites. But forcing OnTheMarket members to use just one other listings site has strengthened rather than weakened Rightmove, the alternate most chose.
What now? What’s OnTheMarket worth – and should the owners consider selling?
Remember PrimeLocation? The site was set up in 2000 by Savills, Knight Frank and others, then sold for £48m in 2006 to the Daily Mail Group. The site is now a high-end sub-brand for Zoopla.
OnTheMarket boss Ian Springett set up PrimeLocation and was re-hired to set up Agents’ Mutual in 2014. But PrimeLocation’s sale was a mistake in retrospect, given Zoopla’s current market capitalisation. Selling OnTheMarket would also be a mistake, even if it never manages to dent rivals’ profits.
There is an alternative. Agents’ Mutual is hobbled by its one-member-one-vote constitution and not-for-profit status. Rightmove has clearly established a licence to print money, but it cannot do so without listings. A bargaining position exists. Why not hand over OnTheMarket to Rightmove sometime before 2020? In return, take Rightmove shares for all members, not just the original backers. Then all can sit back and enjoy Zoopla’s discomfort and dividends from a business that is run for profit, not for protection.
PS: Commercial property agents might feel the above fight is taking place in a different ring. Beware: Rightmove lists 40,000 non-residential properties in the UK, Zoopla 30,000. The pair are climbing through your lower ropes. There is no separately defined commercial section at OnTheMarket. One is planned.
