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OnTheMarket Plc

OnTheMarket Plc Network effects strengthen

OnTheMarket Plc (LON:OTMP) has released details of the increase in stock of properties, visit traffic, and leads to agents since February 2018:

On 31 January, OTM listed 600,000 UK residential properties: this is over 80% of Zoopla’s and 60% of Rightmove’s stock of listings;

In January 2019, OTM had 23.5 million visits, which is over 4x the visits to OTM in February 2018;

In January OTM provided estate agents more than 7x the leads it provided its estate agent customers in February 2018;

1.5m active property alerts is further evidence of consumer engagement with OTM.

Zeus view. OTM’s network effects are strengthening. Its interims in October stated: “Compared with February 2018 when [its] IPO took place OnTheMarket has doubled offices and properties listed, trebled monthly traffic and quadrupled email and telephone leads to agents.” Over a full year, OTM has increased its offices by over 127%, quadrupled the number of visits and increased leads 7x.

The number of quality-leads compared to the fees paid by Estate Agents (i.e. the cost per quality-lead) is the important number for each business. Low cost per quality-lead should encourage Agents on a “First Year Free” contract to sign long-term contracts and should further encourage Agents already on long-term contracts to support OTM.

Agent testimonials provide evidence of numbers and quality:

 “leads supplied to us is not far off 50/50 between Rightmove and OTM”;

 “we are getting 60% of our leads from OTM and 40% from Rightmove. More importantly, the conversion rate is better than Rightmove’s.”

 “We consistently get more good quality leads from OTM than from any other portal.”

Support from paying customers is an important indicator of future revenue growth.

Valuation: Equity value/office. In our opinion equity market value per office is a useful indicator. At 93p a share OTM has over 12,500 offices and is trading on an equity market cap of £57.2m (i.e. only £4.6k/office; Rightmove is trading on £230k/office), which does not reflect the value of these relationships which we estimate to be more than £20k/office.
By 2020-21, with the portal delivering an EBIT margin of over 30%, we would expect OTM to trade on over £20k/office, which would be consistent with a fully diluted share price of over 300p a share.

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