Price comparison sites have been a big deal for the last decade as tens of millions log on to compare financial products online. Investors have reaped the rewards too, with the Moneysupermarket.com (LSE: MONY) share price up 108% over the past five years. Its outperformance has continued this year, with the stock up 32% compared to 12 months ago.
It has gone into sharp reverse today with the share price crashing 10% after a disappointing, but hardly disastrous, Q3 trading statement. The site’s current motto is Get Money Calm, but today investors are in a selling frenzy. This could be an opportunity for those who believe in the group’s longer-term prospects.
Today’s update was bullishly headlined “Revenue grows 4% as energy outperforms”, but investors chose to focus on less impressive numbers, primarily the 5% drop in revenues from its Money division to £20.6m.
Quarterly revenues from Home Services (which includes energy) compensated by growing a healthy 21% to £17.7m, but this slowed from 40% growth when measured over the nine months to 30 September.
Revenue growth in its Insurance division, which accounts for half of all sales, remained solid at 3% to £49.9m, despite the “subdued premium environment”. CEO Mark Lewis warned that although overall trading dynamics should continue to the end of the year, Money will “weaken”. However, the board remains confident of meeting full-year market expectations.
There were signs of a slowdown in July, when I warned the group has to keep growing fast to justify its toppy valuation of 22 times forecast earnings. Today it still looks pricey at 21.4 times forward earnings, with a price-to-revenue ratio of 5.3. City analysts remain optimistic, suggesting earnings will rise 4% this year and 9% next, when the dividend will hit 3.3%.
Moneysupermarket has a strong brand and mobile functionality, and the over-crowded market has been whittled down to just four major competitors: Compare the Market, Confused.com, GoCompare and uSwitch. The stock may still tempt, but given today’s pricey valuation you might want to look elsewhere in the FTSE 250.
GoCo Group (LSE: GOCO) has been flying lately, its share price jumping 16% in the last week (30% over the month), despite July’s interims showing year-on-year revenue growth of just 0.3% to £76m.
Its numbers show the difficulty of competing in this market, with price comparison revenues flat and car insurance conversion of just 1.2 percentage points, “broadly offsetting marketing inflation in a competitive market”.
GoCompare has been looking to drive growth – or at least maintain its market position – with new services such as WeFlip, and the recent acquisition of the Look After My Bills service, which has more than 150,000 live customers, for £12.5m.
The group is keen to stress its “disciplined financial performance”, essential in such a competitive market, and is looking to add a new revenue stream by developing proprietary technology platform SaveStack, striking a recent partnership with CYBG/Virgin Money.
Again, GoCompare looks pricey 21.1 times forward earnings, given low growth prospects and a forecast yield of just 1.4%. Investors have been piling in lately, but this remains a tough sector to make money in.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.