Zoopla Property (LON:ZPLA) listed on the stock market on the 18th June. It's an opportune time to review that company and its main competitor, Rightmove, because you can read the IPO prospectus of the former on the web. A prospectus always discloses more information than you will normally get although Rightmove (LON:RMV) is also quite open with information.
These two companies are the gorillas in the on-line property advertising market with Rightmove being larger in size but Zoopla apparently growing more rapidly. In their financial years ending in 2013, Rightmove had revenue of £139m and Zoopla had revenue of £64m. Pre-tax profits of the former were £97m and the latter were £28m. Rightmove revenue was up 17% in 2013 while Zoopla was up 80% but the latter was probably boosted by acquisitions.
Both these businesses look quite mature in the sense that they both have very comprehensive and similar web site functionality, and have signed up a very large proportion of estate agents in the UK. Smaller competitors have been squeezed out or taken over in recent years. Internet businesses tend to develop into natural monopolies because the largest and most well known businesses have enormous economies of scale - being the first mover also helps a lot. One might expect the market to form a cosy duopoly in due course, although a third upstart is going to try to get into it later this year (see below).
As a result both Rightmove and Zoopla are highly profitable and cash generative. Rightmove has been returning a lot of cash to shareholders via dividends and share buy-backs - for example buybacks of £31m in the first four months of this year alone. With high profits, and little opportunity for expansion (overseas markets are not particularly open apparently), Rightmove seems to have taken a position of returning cash to shareholders while Zoopla has been more aggressive in trying to capture market share. It is noticeable of late that Zoopla seem to be spending a lot more on advertising in traditional media to gain market awareness in end users of these web sites, but the prospectus also commits them to paying a high proportion of earnings out in dividends (between 35% and 45% of profits - see page 60 of the prospectus).
As already noted though, both…
