The scene is set for another battle for market share in the high margin property listing website space as estate agent-owned OnTheMarket prepares to float on the UK stock market in the very near future.

The incumbents in this area are Rightmove (RMV) and Zoopla, owned by ZPG (ZPG).

Both businesses make money from subscriptions paid by estate agents for listing properties on their respective websites.

Strong earnings visibility, high margins and healthy cash flows have been rewarded by the market with premium equity valuations. Rightmove trades on a 2017 price-to-earnings (PE) ratio of 27.2 times and ZPG on a PE of 26.

Competitive threat

Agents’ Mutual launched OnTheMarket in January 2015 to try and break up Rightmove’s and Zoopla’s duopoly. Estate agents using its site were initially only allowed to list with one other site, namely Rightmove or Zoopla – but not both.

For the most part agencies appeared to opt for Rightmove, arguably strengthening its position at the expense of Zoopla.

OnTheMarket now plans to drop the ‘one other property portal’ rule and use the targeted £50m raised at the forthcoming AIM listing for a big marketing push.

This decision is a little surprising after the UK’s competition tribunal recently found OnTheMarket’s actions weren’t breaking competition rules. However, the firm believes that dropping the listing restriction will attract substantially more agents previously put off by the rule.

Impact on rivals

Zoopla suffered at the hands of OntheMarket after its launch with an almost immediate 11% year-on-year slump in agent numbers.

Membership figures started to grow again in May 2015 and there have been 750 returners from OnTheMarket over the intervening two years according to investment bank Liberum.

Zoopla has also added to its offering through acquisitions such as buying the uSwitch price comparison site and a property software business.

One-stop-shop

Alex Chesterman, founder and chief executive of Zoopla, has talked about creating a one-stop-shop for consumers to ‘research, find and manage their homes’. He argues the enhanced engagement with users will ‘create a unique advantage’ for advertisers.

Panmure Gordon analyst Jonathan Helliwell reckons the OnTheMarket threat for Zoopla and its parent company ZPG will fade over time.

‘We make no changes to our ZPG estimates, and would see near term weakness as a potential opportunity to get into a group which continues to have a very strong long term investment story – including the eventual recovery of lost market share from OnTheMarket.’

We share this view and would be cautious with regards to investing in OnTheMarket when it lists.

The key to being a successful property listing site is offering the fullest view of the inventory of homes currently on the market. Otherwise you are likely to be ignored by prospective buyers and therefore of little use to an estate agent.

As the accompanying graphic shows, OnTheMarket falls short on this basis. Spending more money on marketing might provide a boost in sales, yet we believe Rightmove and Zoopla remain the superior choices when it comes to investing.

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