A new report by investment bank Morgan Stanley has claimed that the listings gap between Rightmove and Zoopla “is wider than expected”.
It also says that Rightmove could be earning a lot more out of agents, with more “legroom” for products such as premium listings.
According to Morgan Stanley, Rightmove could deliver five years of 10% annual growth if online property advertising increases to the same levels as online auto advertising.
The bank’s research says that Rightmove has one million listed properties, Zoopla has 650,000 and OnTheMarket 350,000.
It says: “We had expected to find that Zoopla has 25% fewer properties listed than Rightmove, based on the reported number of agents.
“However, our data suggests that the actual figure is 35%.
“Buyers follow properties, agents follow buyers, and agents pay the property portals, so we think Rightmove could continue to take revenue share.”
The report, which is specifically into Rightmove and has been issued to investors, raises its previous forecasts on the basis that Rightmove could earn more from agents.
It says that 55% of property advertising spend in the UK is online. For cars it is 70%, and in recruitment 90%.
The report says that on the back of growth in Rightmove, earnings per share (EPS) could double in five years, and forecasts 15% annual revenue growth. This is 8% more than Morgan Stanley’s previous forecast.
Its new analysis implies that EPS could be 250p in five years.
It says that agents are spending a “low proportion” online, and that Rightmove has “pricing power”.
But, says the report: “It aims to drive most of its growth by adding value to agents. REA, its Australian peer, makes 56% of its revenue through products; Rightmove is only at 37%.”
However, the report does point out that when comparing Rightmove with REA, the Australian portal “has been successful at monetising the property seller directly, not through the estate agent”.
It adds: “While Rightmove encourages sellers to ‘speak to their agents’ to showcase their properties as featured or premium listings, we do not envisage a shift to a seller-paid model any time soon”.
Morgan Stanley says that Rightmove’s shares are not cheap at first sight, but offer good value through structural growth drivers.
In a section about OnTheMarket, the Morgan Stanley report says: “We knew that Zoopla had lost c. 3.5k agents and that Rightmove’s number of agents was unchanged. As such, we thought that the property difference would be closer to 25%, in line with the new agent split.
“However, it looks as if the concentration of properties with those agents that have left is higher as Zoopla has 35% fewer properties than Rightmove.
“We expect Rightmove to take share.
“We think OnTheMarket properties are mostly concentrated around the same areas, so buyers will start noticing the lack of inventory at Zoopla. If property buyers move from Zoopla to Rightmove, it would tilt the balance of power further. We forecast Rightmove will regain revenue share as a result.”
The report does praise Zoopla’s “highly attractive valuation tools” and notes that Rightmove “now makes similar data available to buyers”.
It also notes “no discernible changes to traffic at Rightmove or Zoopla, but says PrimeLocation traffic is down 18% year on year”.
Looking at ComScore, SimilarWeb and Alexa, it says that traffic to PrimeLocation – part of the Zoopla group – showed a “meaningful deterioration in traffic in February”.
The report says this could be a result of losing London agents to OTM, or a symptom of the cooling London market where PrimeLocation is strongest.
Morgan Stanley raised its share price target for Rightmove from 2,800p to 3,200p, but in a “bull case” scenario from 3,600p to 41,000p. Its worst case “bear” prediction had been 2,000p, based on a loss of 700 agents to OTM.
It has now raised this bear prediction to 2,500p on the basis that Rightmove has lost no agents.
On Friday, Rightmove shares closed at 2,982p.