What’s new: OnTheMarket’s interims provide evidence of progress to delivering better-than-peer cost per advertiser (i.e. ARPA), service and marketing yield (i.e. leads per £100 spend). Highlights include:
- Average branch numbers rose 60% to 12,434, with 12,543 on 30 June and 12,622 on 30 September. Consequently, UK residential listings are now approximately 86% of Zoopla’s and 64% of Rightmove’s listing;
- ARPA of £108 per month (FY18/19: £130) reflects agents listing under short-term free trial contracts; by 30 September 2,346 agents had converted to paying an average ARPA of £288 and 42% on long-term contracts with shares;
- 75% increase in leads to advertisers to 120m (27m visitsin September alone); leads per advertiser doubled to 93 per month (112 in September);
- Group revenues rose 14% to £8.0m and operating cash outflow £5.5m;
- 31 July cash of £8.8m (31 May 2019: £10.2m; 31 January 2019: £15.7m);
Guidance for the periods ending 31 January 2020, 2021 and 2022 was confirmed:
- FY20 revenue in the range £18.0m to £18.5m (i.e. growth of 27% to 31%) with an adj EBITDA loss of £9m to £10m;
- FY21 revenue growth in the range £27m to £29m, achieving “a broadly breakeven adjusted EBITDA” (we forecast a £2m adj PBT loss);
- FY22 revenue growth resulting in significant profitability and cash generation.
Outlook: “The Group’s revenues are now covering fixed operational costs before marketing expenditure and are growing. The Group is trading in line with its recent guidance and it had a cash balance at 30 September 2019 of £8.6m.”
Zeus view: These results provide clear evidence that OTM is delivering its paying customers a higher marketing yield than its larger peer Rightmove. On its standard tariff of £331 a month, OTM provides its advertisers 34 leads/ for every £100 spend: this is more than twice that of Rightmove (1H19: 16 leads per £100 spend). We maintain our forecasts which we set on 26 September 2019. Strong cost control and increasing contracted monthly run-rate revenues support management’s indication that OTM should reach breakeven in 2Q/3Q next year.
Valuation: In our view, once it has reach breakeven, OTM should trade on over £10k per advertiser (i.e. over £125m).
