Search portal Zoopla (ZPLA) enjoys a good initial reception with the counter up 3.9% to 228.5p on the 220p issue price as conditional trading begins. Investors at large will be able to buy stock when unconditional trading commences on Monday (23 Jun).
There has been quite a lot of chat in the market about the competitive threat facing Zoopla as London estate agents prepare to launch their own service, under the name Agents' Mutual, while quoted peer Rightmove (RMV) has corrected sharply in the past three months (see chart). All this coming at a time when the Bank of England has flagged imminent interest rate rises to cool the property market.
However, we don’t believe an industry rival will represent a credible threat and expect there to be enough room in the market for two players. Meanwhile, while rate rises could well take some of the heat out of the property market, predictions of a collapse seem overblown since rises are likely to come in the form of gradual 25 basis point increments.
It is not possible to make a peer-to-peer comparison with Rightmove given there are no Zoopla forecast in the market yet, however discounted cashflow analysis circulating suggests a market valuation in the order of £1 billion would be about right. At 228.5p, Zoopla’s market capitalisation is about that level, but investors should position for long-term growth.
Broker Canaccord Genuity forecasts a 13% compound annual growth rate (CAGR) in online property advertising spend in the sector over the next five years (see here). It believes Rightmove will increase its own sales at a 10% CAGR over the same period and investors may expect a similar level of growth from Zoopla.