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OnTheMarket Plc

OnTheMarket plc Delivers a year of strong operational progress

OnTheMarket plc (LON: OTMP), the agent-backed company which operates the OnTheMarket.com property portal with over 12,500 branches under contract, has today announced its audited results for the year ended 31 January 2019. A final results presentation will shortly be available to view at https://plc.onthemarket.com/investors.

Operational and strategic highlights

• Conversion of agents from free to paying contracts is underway and new agents are being recruited directly to paying contracts. A total of almost 1,000 branches have been signed under paying contracts since conversion commenced, with an average ARPA of £337 per month.

• Of these new contracts, 57% are long-term commitments of three or five years with shares and the majority of the balance are on 1 year contracts with an option to convert to a longer-term contract with shares.

• The ongoing growth in paying contracts is key to the Group’s transition into profitability and is supported by:

○ Growing property stock: As at 3 June 2019, the portal displayed over 650,000 UK residential property listings, already approximately 65% of Rightmove’s1 and over 83% of Zoopla’s1. Continued growth in agent branches on OnTheMarket.com remains key to our strategy and future success;

○ Growing consumer traffic: In May 2019, a record 25.4m visits were made to the portal, up 8% from the previous record in January 2019;

○ Growing consumer engagement: In the month of May 2019, more than 1m people were using our property alerts service and over 100m instant alert emails were sent. Across 2018, Rightmove sent an average of 65m instant alert emails per month to over 2m people;

○ Growing leads to agents: In May 2019, the Group’s average leads per UK residential property advertiser rose to 102 per month. Based on their most recently published information, Zoopla’s average per month fell to 92 (H1 2018) and Rightmove’s fell to 171 (FY 2018);

○ Improving value for money: Based upon an ARPA2 of £337 per month, in May 2019 the Group provided an average of 30 leads per £100. In FY 2018, Rightmove provided on average 17 leads per month per £100, down from 28 leads in FY 2015. The Board is particularly pleased with this as it highlights the significant value we are providing to our customers; and

○ Matching Rightmove’s core agent products: In March 2019 we began rolling out products which support agents’ operations within the listing fee and provide them with additional advertising opportunities at extra cost.

• Preparatory work to extend our offering to new home developers has begun.

• The Group continues to evaluate opportunities to acquire businesses, particularly in the area of property technology, which can offer solutions to current business problems faced by its agent customers.

• With revenues broadly covering operational costs before marketing expenditure and growing, a cash balance at 31 May 2019 of £10.2m and the continued support of agents, we are well placed to deliver long-term value to shareholders.

Financial highlights and KPIs

• As at 31 January and 31 May 2019, OnTheMarket had signed listing agreements with UK estate and letting agents with more than 12,500 offices. This reflects continued recruitment of new agents on free trials or straight to paying contracts, offset by agents who have been removed from the portal following the end of their free trial periods.

• ARPA2 £130 (2018: £198), reflecting the strategy to grow rapidly through free short-term introductory trial offers. Average branch numbers listed at OnTheMarket.com 9,460 (2018: 5,694), visits3 158.9m (2018: 77.3m).

• Group revenue of £14.2m (20184: £13.6m).

• Administrative expenses of £27.8m (20184: £9.7m) after advertising expenditure of £14.9m (2018: £2.2m) as the Group invested capital raised in increased marketing and expansion of the team, in line with the new growth strategy. The Group is pleased to report that its marketing spend during the year was more efficient than originally envisaged and expects to continue this trend in the future.

• Adjusted operating loss5 £13.6m (2018: adjusted operating profit5 £3.9m).

• Operating loss of £14.5m (2018: £10.8m) which includes £0.9m (2018: £14.7m) of specific professional fees, share-based payments and non-recurring items.

• Loss after tax attributable to shareholders £14.5m (2018: £12.1m).

• Cash balance at 31 January 2019 £15.7m (2018: £3.2m).

Ian Springett, Chief Executive Officer of OnTheMarket plc, commented: “OnTheMarket has delivered a year of strong operational progress since its IPO in February last year. The Group’s strategy to build strong network effects and deliver increasing value to our agents is working. We are established as one of the leading portals and our progress to date has given us confidence that we can continue to build on this strong start and develop a market-leading, agent-backed alternative to Rightmove and Zoopla.

“We are benefitting from growing agent support and are strongly positioned to continue our growth in agent offices listing and in agent firms converting to becoming investors alongside long-term paying contracts. The Board believes that with the continued support of agents, we are well placed to deliver long-term value to shareholders.”

1) Rightmove, in its 2018 Annual Report, stated that it had “1 million UK residential properties”. As at 3 June 2019, Zoopla stated on its website that it was listing 562,144 UK residential sales properties and 225,592 UK residential lettings properties, totalling 787,736 properties – down from 822,250 as at 3 July 2018.

2) Average revenue per property advertiser, being revenues due from property advertisers for a period divided by the average number of property advertisers for that period. ARPA presented herein is the average of the monthly ARPAs for the year.

3) Visits comprise individual sessions on OnTheMarket.com’s web based portal or mobile applications by users for the period indicated as measured by Google Analytics.

4) Revenues and administrative expenses for the year ended 31 January 2018 have been restated under IFRS 15. Further information is set out in note 2.4.

5) Adjusted operating loss / profit is defined as operating loss / profit before finance costs, taxation, share-based payments, specific professional fees or non-recurring items. This is an alternative performance measure and should not be considered an alternative to IFRS measures, such as revenue or operating loss / profit. Please see the Financial Review and Key Performance Indicators for a reconciliation of operating loss to adjusted operating loss.

Chairman’s Statement

I am pleased to be reporting on a period of strong operational progress following our successful AIM listing and fundraising on 9 February 2018.

The fundraising and listing on AIM was part of a transformational strategy intended to enable the Company to accelerate its growth and enhance its position as a serious challenger to the duopoly UK property portals Zoopla and Rightmove, by offering a more responsive and better value option to agents and property-seeking consumers alike.

The investment of proceeds from our £30m AIM fundraising in marketing expenditure and team expansion has enabled us to achieve success against our own internal key operational performance targets:

• agent offices under listing contracts up by more than 7,000 since Admission, with over 12,500 as at 31 January 2019;

• Traffic to the portal in the year to 31 January 2019 was 158.9m visits, compared with 77.3m in the prior year; and

• key sales-force and IT recruitment ahead of plan, with team numbers increased since Admission from 15 to 50 and 21 to 58 respectively by 31 January 2019.

2018 was a year spent investing in the growth of OnTheMarket.com and in positioning the business to create a strong, credible alternative to Rightmove and Zoopla.

Governance

The Company has adapted well to being a listed company, retaining its entrepreneurial culture and pro-agent ethos whilst embracing the corporate governance challenges that are part of life within a publicly listed company.

Current trading

Since the year end we have increasingly engaged with agents to convert those who joined us on an introductory free trial to paying customers. That process will continue throughout the year ahead and with the continued support of agents we are well placed to deliver long-term value to shareholders. Further details on progress to date are set out in the Chief Executive Officer’s Report.

Our team of colleagues remain highly focused to continue to build upon our strong growth to date.

I would again like to thank all of my colleagues, team members and shareholders for their continued hard work and support. Many challenges remain before us, but with the continued commitment of all our stakeholders I am confident that we can achieve our aim. That is to provide an agent-backed alternative residential property portal, offering property-seekers a “go to” premier search experience, charging property advertisers sustainably fair prices, creating long-term value for all shareholders and being a rewarding place for our people to work and thrive.

Christopher Bell – Non-Executive Chairman

Chief Executive Officer’s Report

I am pleased to report that OnTheMarket, the UK’s agent-backed residential property portal provider, has delivered a strong, successful first year of operational progress since its admission to AIM on 9 February 2018 alongside a capital raise of £30 million (gross).

As a challenger business and brand, OnTheMarket aims to become an alternative to Rightmove and Zoopla by providing the property-seeking public with an excellent agent-backed portal and by providing its agent investors and customers with listing and support services and a commitment to sustainably fair pricing.

In our first year as a listed business, we have vigorously pursued the transformational growth strategy we had set out in our Admission Document, delivering disciplined rapid expansion while investing to generate long-term benefit and value for our customers, for our consumers, for our shareholders and for our people.

OnTheMarket is already indisputably established as one of the leading portals and as a go-to destination for the most serious property-seekers in the market.

Operational KPIs in terms of growth in agent offices, consumer visits to our portal and leads to our agent customers have met or exceeded internal expectations and have been achieved with lower-than-planned cash burn.

We have already achieved much to close the gap between OnTheMarket and the previous effective duopoly and we have every intention of first matching and then bettering their current core services and products to create a viable alternative for agents and property-seekers alike.

Leveraging our unique agent-backed business model

At Admission, OnTheMarket was 70% owned by over two thousand agent firms. The majority of agent shareholders committed to new 5 year listing agreements and to enter lock-in arrangements to retain the majority of their shares for 5 years post Admission.

It has been an objective to broaden agent ownership still further and as at the date of these accounts, 1.7m new shares have been issued to agents signing long-term listing agreements, although not all shares contracted to be issued under long-term paying listing agreements signed have been issued to date as share issues lag contract commencement.

Agents provide the majority of income for the property portals and also supply their essential and most valuable content – the property listings. As a portal with significant agent support, the Directors believe that OnTheMarket.com is uniquely positioned to create an alternative to the leading incumbent portals. One of the strongest examples of agent support to create competitive advantage is the “New & exclusive” feature: OnTheMarket receives listings for thousands of new-to-market properties every month from its agents to display 24 hours or more before they are on Rightmove or Zoopla.

Accelerating the growth in classic network effects

In a two-sided network, the pillars of our strategy in 2018/19 have been a rapid build of our agent customer/shareholder base, a strong marketing campaign to increase consumer traction and leads and a substantial investment in building the team, particularly in sales, customer relations and IT.

Building the agent branch base and property listings

A key priority in 2018/2019 has been the rapid building of our agent branch base and property listings and our progress has been very strong.

As at 31 May 2019, OnTheMarket had signed listing agreements with UK estate and letting agents with more than 12,500 offices – an increase of over 7,000 offices since Admission. This reflects continued recruitment of new agents on free trials or straight to paying contracts, offset by agents who have been removed from the portal following the end of their free trial periods.

As at 3 June 2019, the portal displayed over 650,000 UK residential property listings, already over 83% of Zoopla’s (which have fallen from 822,250 as at 3 July 2018 to 787,736 as at 3 June 2019) and approximately 65% of Rightmove’s. In its 2018 Annual Report, Rightmove stated it had 1 million UK residential properties.

The growth in our agency branch base post-Admission was almost exclusively achieved by offering free listings under short-term introductory trial offers, with a view to converting these to full-tariff contracts in 2019/20 when agents have had the opportunity to assess the value of our offering. Over 6,500 agent branches have joined OnTheMarket.com on such short-term offers.

Continued growth in agent branches on OnTheMarket.com remains a priority and is key to our future strategy and success.

Conversion of agents from introductory trial offers to paying contracts underway

The conversion of agents from free listing to paying contracts is underway and new agents are being recruited directly to paying contracts. A total of almost 1,000 branches have been signed under paying contracts since conversion commenced, with an average ARPA of £337 per month. Of these new contracts, 57% are long-term commitments of three or five years with shares to list all their available properties and actively to promote the OnTheMarket.com brand. The majority of the balance are on 1 year contracts with an option to convert to a longer-term contract with shares.

The ongoing growth in paying contracts is key to the Group’s transition into profitability. The conversion process is using a range of offers which, for selected agents, include long-term agreements which will be accompanied by share issuance. The Directors believe that attractive equity incentives can be provided to new property advertisers joining OnTheMarket.com whilst at the same time enhancing value substantially for existing shareholders. Such equity issuance enables agents to support the only major agent-backed portal with a view to creating a fairly-priced alternative to Rightmove and Zoopla and to share in any increase in the value of the Company.

The shares issued to agents are typically subject to lock-in arrangements to ensure that new shareholders’ interests are closely aligned with those of all other agent investors and with the success of the Group.

The Group has authority remaining to issue up to a further 34.7 million Ordinary Shares to recruit new property advertisers, and the issuance of these shares is expected to result in both direct and indirect revenue growth.

Marketing to build property-seeker traffic and engagement and to increase value to agents

With the capital raised at Admission, the Group has been able to deploy significant and increasing funds to multi-channel marketing. The Company has taken a disciplined approach to the building of its advertising investment to ensure optimal value.

In addition to ramping up our advertising on paid search and other digital marketing, we have been able to conduct our heaviest national TV advertising since our launch period in 2015. A new TV advertising campaign was introduced in September 2018 and ran in the key period from Boxing Day, through the month of January and beyond into 2019.

In addition, we ran national radio and poster advertising, with our biggest ever monthly budget in January 2019.

A key theme of these advertising campaigns is the “New & exclusive” properties which many of our agents choose to list at OnTheMarket.com in advance of listing on Rightmove or Zoopla. The Directors believe this gives OnTheMarket a competitive advantage as this has been shown to hold a significant appeal to active property-seeking consumers, who are the key target group as they in turn provide listing agents with the highest quality leads.

Combined with our growth in agents and property listings, the investment in marketing has also led to a substantial increase in visitor traffic to OnTheMarket.com, generating substantially greater value to our agent investors and customers through a higher volume of high-quality leads.

In May 2019 a record 25.4 million visits were made to the portal, up 8% on January 2019’s seasonal high and previous monthly record.

Leads to agent customers also reached record monthly levels in May 2019 with an average of 102 leads per advertiser per month, despite the uncertainty surrounding the UK residential property market. Based on its last published half-year report as ZPG plc (H1 2018), Zoopla delivered an average of 92 leads per advertiser per month for that period, down from 136 in FY 2015 (the year that OnTheMarket.com was launched). In FY 2018, Rightmove delivered an average of 171 leads per advertiser per month, down from 210 in FY 2015.

In 2018 Rightmove provided on average 17 leads per month per £100 of advertiser spend, down from 28 leads in 2015. Based upon an average monthly fee per advertiser of £337, in May 2019 the Group provided an average of 30 leads per £100 of advertiser spend. The Board is particularly pleased with this as it highlights the significant value we are providing to our customers.

In June 2018, 4 months after our Admission to AIM, a YouGov survey of all adults recorded our prompted brand awareness at 19%. Amongst active property-seekers, being those surveyed who had moved within the prior 5 months or who were actively looking to move, our prompted brand awareness was 27%.

Following the investment in marketing detailed above, including the new TV campaign, in May 2019 our prompted brand awareness has risen dramatically to 35% for all adults and to 47% for active property-seekers.

We have invested in continuously improving the quality of the user experience on the portal and consumer engagement has continued to grow. In May 2019 OnTheMarket sent over 100 million instant property alert emails to its registered users. This compares with 781 million instant alert emails sent by Rightmove across the whole of 2018, an average of 65 million per month.

A key reason for the most serious property-seekers in the market to sign up for an alert with OnTheMarket is that they will be first to see any relevant “New & exclusive” properties: OnTheMarket displays thousands of new properties every month 24 hours or more before they are on Rightmove or Zoopla. Our sales team continue to engage with our agent customers and as a result of this we are seeing hundreds of new branches each month signing up to our “New and exclusive” programme.

On 5 September 2018, we announced an agreement with Facebook that our UK agents’ home rental property listings would be available to view on Facebook Marketplace. The Facebook Marketplace integration has been another productive example of how we have been increasing the exposure of our agents’ properties for the benefit of our agent customers and the property-seeking public alike.

Investing to build the team to deliver in the short term and the long term

The greater financial resources available to the Group have also been deployed in expanding the team, in particular the sales and customer relations team and the IT team.

At Admission on 9 February 2018, the field sales team numbered 15 employees. As at 31 January 2019 this had been increased to 50. This significant expansion in sales and customer relations support enables us to rapidly and effectively recruit new agents whilst implementing and maintaining the expected levels of service for existing and new customer agents during the period of rapid growth.

The sales team has progressively broadened its focus to engage with customers to seek to increase the number of agents prepared to adopt “New & exclusive” for their new instructions as well as increase property alert sign-ups. In addition, the team continues to focus on the value delivered to customers as the short-term introductory contracts come to an end and we explore with them the opportunities to convert to paying contracts.

Likewise, as at 31 January 2019, the IT team had been increased from 21 to 58.

The enlarged team is focused on technical support for on-boarding agents and property data, specifying and delivering new products for consumers and customers and the continuous improvement of existing products.

The success of the rapid but controlled growth in the organisation has depended on a culture of disciplined inclusion and empowerment. This reflects the powerful combination of entrepreneurial spirit and seasoned management within the leadership team and across the business.

Creating new products and services for our property advertisers

In addition to the core property and agency listing service, the two market-leading UK property portals offer a variety of paid-for additional consumer-facing promotion and branding products, as well as a variety of back-office products for agents and new homes developers.

The Company aims first to match and then to better the core set of agent products and services of its competitors, ranging from advertising products to a full set of intelligence-based services to enable them to track their performance locally and nationally across a range of valuable measures.

I am pleased to report that after much preparatory work in the year ended January 2019 the Company has since launched the first phase of its back-office service to its agents in the form of a “Market Appraisal Guide” to support agents with intelligence and branded materials for appraisal meetings with clients.

I am equally pleased to report that OnTheMarket has recently launched a range of value-adding products to enable agents to boost the visibility of their brand and their listings on the portal. These products, including enhanced property presentation and banners on our portal and property alerts, are bought separately from the contractual listing fee. Further revenue-generating products will be released later this year.

A Market Intelligence Report product is currently in beta testing and is expected to be ready for release shortly.

Additionally, the Group continues to evaluate opportunities to acquire businesses, particularly in the area of property technology, which can offer solutions to current business problems faced by its agent customers.

Broadening our advertiser base

The Company’s growth strategy will in due course address the wider property market, including new home developers and the commercial and overseas property markets. We will also offer non-property advertisers the opportunity to promote themselves and their products and services to our very large and growing audience of active and engaged property-seekers.

The new homes market is our initial focus and preparatory work has been initiated to enable us to address this opportunity in the current year.

Responding positively to market conditions

The Directors believe that the UK agency market has continued to be under pressure from the uncertainty caused by a number of economic and political factors.

Nevertheless, the volume of housing transactions at a national level remained resilient throughout 2018, broadly in line with the 5-year average, and house prices at a national level have also continued to increase, albeit modestly and with some strong regional differences.

In 2019, many industry bodies have reported a slow start to the year with agents’ property for sale stocks down on last year.

Overall UK agent office numbers, including hybrid agents, have not reduced significantly, indicating that competition in the market for agency services remains strong, with downward pressures on commission rates.

Against this backdrop, independent agents’ portal costs have continued to rise significantly.

Some portals are competing with their agent customers for cross-sell revenues.

The Directors believe that these market developments provide a strong rationale for agents to support OnTheMarket, which provides sustainably fair pricing and increasing value as we deliver on our strategy, including increasing website traffic amongst the property-seeking public and growing the volume of quality enquiries from these property-seekers to the agents listing at OnTheMarket.com.

Litigation

In July 2017, judgment was handed down by the Competition Appeal Tribunal in favour of Agents’ Mutual and against Gascoigne Halman Limited on all competition issues: the One Other Portal rule* was upheld as lawful and enforceable and Agents’ Mutual was awarded £1.2m as an interim payment towards its litigation costs.

In December 2017, having had an application to appeal to the Competition Appeal Tribunal refused, Gascoigne Halman Ltd was granted leave to appeal the judgment of the Competition Appeal Tribunal at the Court of Appeal.

The hearing of the appeal took place on 27 November 2018 for three days. I am pleased to report that in January 2019 the Court of Appeal unanimously and comprehensively dismissed Gascoigne Halman’s appeal and issued judgment in favour of Agents’ Mutual with regard to all the competition issues in its proceedings against Gascoigne Halman.

Whilst the residual non–competition issues relating to our claim remain to be resolved, OnTheMarket emerges from this stage of the litigation stronger and as committed as ever to injecting much -needed competition into the property portals market, which had previously been heavily dominated by two large groups. The litigation proceedings are now focused on the recovery of material costs and damages suffered by the Group due to Gascoigne Halman’s breach of contract.

Outlook

I am proud of what the Group has achieved this year.

As the UK’s agent-backed residential property portal provider, the Group’s strategy to build strong network effects and deliver increasing value to our agents is working.

The investment in marketing has led to a substantial increase in visitor traffic to OnTheMarket.com, generating greater value to our customers through a greater volume of high-quality leads.

We have benefited from growing agent support since Admission. We are positioned to continue our growth in agent offices listing and in agent firms converting to becoming investors alongside long-term paying contracts.

The investment in expanding the team has provided OnTheMarket with a workforce with the talent, motivation and capacity to deliver a first-class product and service to both property-advertising agent customers and property-seeking consumers.

With a clear vision and direction of travel, our outlook is therefore positive. Our progress to date and the clear support for an agent-backed portal give us confidence that we can continue to build on this strong start and develop a market-leading, agent-backed alternative to Rightmove and Zoopla. Agents have demonstrated their support and have begun converting to, or signing up for, paying contracts, predominantly long-term in nature.

Agents provide the core content that any successful property portal requires. With the continued support of agents we are therefore well placed to deliver long-term value to shareholders.

Group revenues are now broadly covering operational costs before marketing expenditure and growing and at 31 May 2019 we had a cash balance of £10.2m. The ongoing growth in paying contracts is key to our future success and remains our focus. We will look to support this by offering the range of products and services agents require, increasing further the value for money we provide them and aligning many of them with the long-term interests of the Company as shareholders.

Such a strong year of delivery could not have been achieved without an outstanding team across all areas of the business. I thank my exceptionally committed colleagues for all their hard work and I welcome all those new employees who have recently joined us.

Ian Springett – Chief Executive OfficerThe

*One Other Portal rule is a provision included in Agents’ Mutual’s original listing agreements whereby agents committed to list their properties on OnTheMarket.com and contractually agreed to using a maximum of one other competing portal.