Should You Buy Rightmove Plc And Sell Zoopla Property Group PLC As Competition Grows?

Today’s full-year results from Rightmove (LSE: RMV) today suggest that the firm’s scale as the largest player in the online property market is now more important than ever.

Rightmove shares have climbed 10%, as I write, leaving them 30% higher since the start of 2015. During the same period, shares in Zoopla Property Group (LSE: ZPLA) have fallen by 8%.

Competitive disruption

One reason for this is that the UK’s online property portal market — which used to be a lucrative duopoly for Zoopla and Rightmove — is being disrupted by the introduction of an industry-backed competitor with low fees:

This new website is attempting to gain market share by only allowing estate agents to advertise on one other site, Zoopla or Rightmove. Realistically, this isn’t a difficult decision: Rightmove is by far the biggest and most important place to advertise a property if you want to sell it.

Today’s Rightmove results appear to confirm this: the firm says that advertiser numbers rose by 5% in 2014 and were unchanged at the end of February, following the launch of

In contrast, Zoopla recently admitted that its advertiser numbers fell by 11% over the year to January. If the decline continues, this could become a serious concern, as it’s likely to reduce visitor traffic.

Minting cash

Rightmove’s combination of top-ranking web search results and comprehensive coverage of property for sale means that it can charge pretty much whatever it likes.

Rightmove’s average revenue per advertiser rose by 13% to £684 last year — more than double the £312 reported by Zoopla for 2014.

Rightmove is more profitable, too — on revenue of £167m (up 19%), Rightmove reported an astonishing operating margin of 73% last year, roughly double the still-impressive 36% reported by Zoopla.

However, the never-ending price increases imposed on estate agents by Rightmove and Zoopla were the main reason the Agents’ Mutual group of estate agents decided to launch

Is this a concern?

Rightmove’s position is safe at the moment, as it still dominates web search results and offers the most comprehensive coverage of UK property for sale.

The question for investors is whether can replicate one or both of these key advantages. This could force Rightmove and Zoopla to cut prices, and could threaten Zoopla’s very existence.

In my view it’s too early to say how this power struggle will turn out.

However, it is worth noting that while Rightmove shares have climbed 362% over the last five year, the firm’s share fell by 16% in 2014 — it may be time to look elsewhere.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.