Simon Baker Opinion: REA-Move Deal Could be a Win for Zoopla and OnTheMarket

A single chart may provide Zoopla and OnTheMarket the leverage needed to challenge Rightmove’s market leadership in the UK. The chart below illustrates the growth in ARPA (average revenue per advertiser/agent) for both the REA Group and Rightmove since 2009:

Should REA Group pursue an acquisition of Rightmove, they would need to pay a premium, justified only by the belief that they could unlock greater value than the current management. Given Rightmove’s EBITDA margins exceeding 70%, cost reduction is an unlikely avenue.

Therefore, the focus would shift to increasing revenue, ideally at similarly high margins. While there has been discussion of expanding into ancillary services like mortgages, REA Group understands that such ventures are unlikely to generate significant revenue streams at high margins.

There has also been speculation about introducing Vendor Paid Advertising (VPA) in the UK, though its success seems improbable.

Firstly, the majority of British buyers simply cannot afford to spend thousands of pounds on marketing their homes. Secondly, introducing such a significant sea change as VPA would come at a bad time for the market - there are enough extraneous factors including interest rates and housing shortages that adding another layer to the transaction runs the risk of slowing the market even more.

As a result, increasing revenue from the existing customer base is the most plausible strategy, either through raising prices on current offerings or by launching new advertising products for existing clients—both of which would drive ARPA growth.

However, a cynical interpretation of the numbers suggests that 'as ARPA goes up, membership goes down': Rightmove is struggling to retain and attract new members at the same time that it is unlocking more and more revenue.

If Rightmove has already hit saturation point with what agents are willing (or able) to spend on their membership, what products can REA bring to the table to rejuvenate a jaded customer base? There aren't many options, certainly not in the very short term.

Fear can be a powerful motivator. Zoopla or OnTheMarket can leverage this chart to raise concerns among advertisers that, under REA Group’s ownership, Rightmove may significantly increase its pricing structure. Additionally, as new AI-driven models are rolled out, agents may be tempted to spend more time investigating adopting them to reduce their reliance on Rightmove and the other portals.

Paradoxically, REA Group’s acquisition could help Zoopla and OnTheMarket close the competitive gap with Rightmove, potentially diminishing rather than enhancing the value of the acquisition.