Can listing platforms - Rightmove, AutoTrader and Scout24 - see off rivals?

Monday, Sep 03 2018 by
8
Can listing platforms  Rightmove AutoTrader and Scout24   see off rivals

Mirror mirror on the wall which UK listed company is the most profitable of them all?  The answer is the property-listing platform Rightmove, and Auto Trader is not far behind. Online listing platforms generate high returns on capital and tend to return the majority of free cash flow to investors.

In this article I will examine the investment cases for three online listing platforms: Rightmove, Autotrader and Scout24. They all enjoy market-leading positions and generate eye-watering profit margins.    

Online platforms charge sellers to list their products and benefit from powerful network effects. Buyers are attracted to the platform with the most listings and sellers want to be on the platform with most buyers.

The largest listing platforms are able to attract new listings without spending exorbitant amounts on marketing. They therefore have the scope to be extremely profitable given that third parties (sellers) provide the content.

A key risk is that rival platforms take market share and reduce listing fees and volumes. Disruptive competition is also a threat with Facebook recently launching Marketplace in Europe and Amazon taking market share from eBay.

Online listing platforms

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*Share price close on 31 August 2018  **Auto Trader and Scout24 have considerable goodwill on their balance sheets.

Rightmove and OnTheMarket: David and Goliath

Rightmove is UK’s leading property listing portal and was founded as a joint venture between four estate agents in 2000.  The website was initially free and started charging for home listings in 2002 and rental listings in 2004.

Property advertising products were introduced in 2007 and now account for a third of total revenue.  A mobile app was introduced in 2009 and mobile searches are now a third of total searches.

Rightmove’s network effect

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Source: Rightmove

Rightmove listed in 2006 at 335p and the recent 10-for-1 stock split makes the split adjusted IPO price 33.5p. Revenue was £33.6m in 2006 versus £243m in 2017 and the operating profit margin improved from 46% to 73% over the period.

These kinds of margins attract competition with Zoopla launched in 2008 and OnTheMarket launched in 2015. OnTheMarket generated £16m revenue in the year to January 2018 and listed in February.

Rightmove has maintained over a 70% share of traffic since 2015 and Zoopla currently has around a 20% market share. Onthemarket

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Rightmove plc is a United Kingdom-based company, which operates as a property portal. The Company's principal business is the operation of the rightmove.co.uk Website. The Company's Website and mobile platforms provide online property search. The Company's segments include Agency, New Homes and Other. The Agency segment provides resale and lettings property advertising services on www.rightmove.co.uk. The New Homes segment provides property advertising services to new home developers and housing associations on www.rightmove.co.uk. The Other segment consists of overseas and commercial property advertising services and non-property advertising services, which include its third-party and consumer services, as well as data and valuation services. The Company offers its services through estate agents, lettings agents, new homes developers and overseas homes agents offering properties outside the United Kingdom but interested in advertising to the United Kingdom-based home hunters. more »

LSE Price
472.25p
Change
-0.8%
Mkt Cap (£m)
4,288
P/E (fwd)
24.8
Yield (fwd)
1.5

Auto Trader Group plc is a digital automotive marketplace. The Company is engaged in the business of buying and selling new and used vehicles. The Company also operates similar business in Ireland through its Website carzone.ie. The Company caters to various types of customer, including Trade, which consists of revenue from retailer customers and revenue from other products and services provided to retailers and home traders to support their online activities; Consumer services, which comprises revenue from individuals for vehicle advertisements on the Company's Websites, and also includes revenue derived from third-party services directed at consumers relating to their motoring needs, such as insurance and loan finance, and Display advertising, which consists of revenue from customers and advertising agencies for placing display advertising on the Company's Websites. Its subsidiaries include Auto Trader Holding Limited, Trader Licensing Limited and Webzone Limited. more »

LSE Price
460.2p
Change
0.0%
Mkt Cap (£m)
4,332
P/E (fwd)
22.3
Yield (fwd)
1.5

Scout24 AG, formerly Asa NewCo GmbH, is a Germany-based holding company engaged in the Internet services industry. Through its subsidiaries, the Company provides digital classified advertisement platforms in Germany and other European countries, notably Scout24.com, ImmobilienScout24.de and Autoscout24.com. The Company owns the automotive classifieds Websites AutoScout24.nl and European AutoTrader BV, and the real estate online portals my-next-home.de and immodirekt.at, as well as an online comparison portal for consumer loans FINANZCHECK.de. more »

GER Price
€41.8
Change
0.3%
Mkt Cap (£m)
3,930
P/E (fwd)
23.6
Yield (fwd)
1.7



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7 Comments on this Article show/hide all

Andrew L 4th Sep 1 of 7
1

Much debate on Twitter, among estate agents, investment publications etc on whether Onthemarket (LON:OTMP) can be successful or not. My best guess is that the chances are low. Consumers don't like change and when there isn't an incentive to try something new they don't. People don't change bank accounts, investment platform provider etc etc. Will they really switch from Rightmove to OnTheMarket? Onthemarket (LON:OTMP) will have a big marketing campaign I think later this year but Rightmove (LON:RMV) will be very difficult to dislodge.

With regard to Gumtree Motors they are backed by eBay. But the stories in the newspapers about them was that you would turn up with cash to buy a car and leave with no car, no cash and a nasty bruise on your head. Obviously this is a very rare occurrence but reputation is everything.

With regard to £G24 apparently Germans don't use estate agents much but instead just find buyers and sellers directly. Any Germans care to chip in?

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Julianh 6th Sep 2 of 7
1

Interesting article. Platforms that get to dominate markets really have (as you say) a licence to print money. I don’t know anything about £Scout24 but will look into it. On Rightmove (LON:RMV) I would be worried (as an investor) that the business is now so mature that most of the investment profits have already been made - unless of course they can grow new revenue streams with the same almost monopoly positions.
On Auto Trader, eBay is also a major competitor, though I imagine most of the listings are generated by private owners trying to sell their cars. When comparing the two:
* Auto Trader is easier to use to find the car you want - the filtering process is more closely aligned to the needs of a car buyer
* Auto Trader has significantly more listings of the few sample cars (make, model, price) that I tested
* but eBay is eBay

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jonesj 6th Sep 3 of 7
1

Agreed.
If you just wanted ANY car, e-bay would be OK, but if you want a specific model, then the search facilities on Autotrader work much better.
I believe the fees on ebay are much lower, so people can clog it up by having the same car advert running for a year or more.
I'm fairly sure e-bay could take market share off Autotrader if they really wanted to. I just don't see much evidence of e-bay fixing any issues with it's site, or running the business with the care that Jeff Bezos does. 
(Disclosure: Long ebay)

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JamesrWilson1989 7th Sep 4 of 7
1

Rightmove (LON:RMV) As a customer, I love how easy the website is to use. However, I get the feeling they are really squeezing out every penny from Estate Agents.

hxxps://www.propertyindustryeye.com/rightmove-defends-20-price-hikes-after-agent-says-it-will-cost-it-18000-more-in-tough-market/

Now that has worked for the business over the last few years. The question is though, will push up the price to a point where they lose customers, and therefore lose the very USP which attracts visitors to the website in the first place?

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herbie47 7th Sep 5 of 7
1

In reply to post #396909

I think Autotrader and ebay are different. I would not buy a car on eBay. My last car I did find on Autotrader and then I bought it from the dealer. I also got a quote for my old car online which seemed too high but actually the dealer almost matched it, there were a few issues that needed sorting out so that was fair. I was quite impressed. But there are other online sites competing, so I struggling to see much growth.

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Andrew L 7th Sep 6 of 7

Great comments here. These companies are consumer facing and so it is great to get some insight. The general takeaway I think is that Network effects are a great competitive moat and also drive growth. So when looking for companies we it is great to bear this in mind. Obviously there are other competitive moats (intangibles, switching costs, lowest costs, efficient scale) but networking effects seems like one of the most powerful ones.

So companies like Expedia and Just Eat may be worth investigating on this basis. Also the US companies like Facebook and Alphabet (Google owner). I think there are even ETFs dedicated to network effects. The Invesco PS Dynamic Networking Portfolio ETF for example. There is also the iShares Networking ETF. Both have performed well.

The beauty of the networking effect competitive moat is that the winning company doesn't have to do much to keep on winning. It also doesn't need to do much to drive growth. By contrast, the price comparison websites and online travel agents have to spend a fortune on marketing to attract consumers. It also isn't necessarily clear if the current leading price comparison website will continue to win. Will Moneysupermarket.Com (LON:MONY) still be a strong contender in four years time? Maybe Amazon will get involved in the price comparison space. However, could Amazon compete with £RMV? That might be harder as there is no incentive for consumers to switch from Rightmove (LON:RMV). The platform is free for them to use.

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Andrew L 7th Sep 7 of 7

Just looking at the thoughts above:

Scout24 - Yes most people in the UK won't have heard of this company. I just added it as it covers cars and housing and so is similar to Rightmove and Auto Trader. So I thought it would be an interesting one to add. Looking at Rightmove and Auto Trader should offer an insight into Scout24 and vice-versa.

Auto Trader versus eBay - I think it is not really eBay it is Gumtree Motors. eBay owns Gumtree. I had a quick look and Gumtree motors has lots of cars. But I think you are right that second hand car dealers would prefer to be on a more professional site like Auto Trader. The feedback here is very useful as I have also heard that Auto Trader is easier for buyers to use. Gumtree Motors comes across as a bit more amateurish in my view. Trust is key when buying a second hand car and I think Auto Trader helps engender this more than Gumtree. For various reasons, Gumtree has a bit of a wild west reputation.

Rightmove - Yes on face value it is easy to think about the investment case being spent here. However, people also thought that about the tobacco sector in 2000. What I try and do is find underlying business drivers. For Rightmove, it is a potential increase in housing transactions in the UK, share buy-backs, added value services for estate agents, listing price increases. If Rightmove buys back 25% of shares over the next 10 years and increases listing prices by 3% a year then earnings per share will continue to do well.

Rightmove price gouging - This is an issue and estate agents are having a very tough time at present. So if this allows On the Market to get a foothold then Rightmove (LON:RMV) may have problems. However, I can't see why property buyers or renters would migrate.

Growth - Yes this is a potential issue but tobacco companies have grown revenue for ages despite declining volumes.  Drivers have been premium brands, price increases, margin increases, acquisitions etc.  If the listing platforms see say a 1% annual increase in listings a 2% increase in prices and buy back 2% of shares then that could be 5% earnings growth a year.  All three of the platforms mentioned here are expected to grow revenue by over 5% a year for the next three years.


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