Can Zoopla shares live up to the hype?

Zoopla may have launched right as the UK housing market crashed, but it has shown the resilience to grow into a household name within the British Isles since. Describing itself as a ‘property portal’, Zoopla lists a large variety of properties for both sale and rent on its site, while also providing plenty of data on valuations and sale statistics. Bizarrely enough, the founder’s roots are not within real estate, as Simon Kain and Alex Chesterman were former LoveFilm executives before starting Zoopla. With over 40 millions visitors each month, many are asking if Zoopla shares are worth investing in?

Market Debut

Zoopla made their long awaited debut on the stock market back in June 2014 and it can definitely be described as successful launch. They raised almost £370 million from the flotation, following the launch DMGT owned over a third of Zoopla shares, while other major shareholders and DMGT together owned 52.6%. The company is valued at almost £1 billion, meaning that they went straight into mid-market territory within the FTSE 250 after the September reshuffle.

Challenges Ahead

Several IPOs fell distinctly flat during 2014 and even though this wasn’t the case for Zoopla, it doesn’t mean that they won’t face similar challenges like the others did in the coming months. Zoopla opted to price its share a little lower than expected come launch day, which meant there was an increased uptake. This has turned out to be a double edges sword, as the large uptake now makes Zoopla shares look inflated. Tangible assets can also be another worry given the expensive price, as the company has very little in hard assets due to being a largely online-based company. Some may flip the argument and say that Zoopla shares actually quite cheap given the company’s rise to prominence. I think if you were to be truly honest about the company’s share price on launch, you would state that the price was more representative of a market leader rather than one who was languishing in second place.

Increased Competition

If you have Zoopla shares already, you may be asking if you should buy more or sell what you have. There are definitely some key arguments for the later. Agents Mutual will launch next year on a five-year advertising fee freeze, and several major national estate agents are backing the company as well. This increased competition will only severe to squeeze Zoopla’s market share. This could be especially damaging should the housing market enter another “bubble” as predicted.

Final Thoughts

In reality, until Zoopla start making enough profit to distribute cash dividends to shareholders Zoopla shares will always be met with skepticism. This isn’t helped by the fact that Rightmove have seemingly shunted Zoopla into the number two position permanently. If you are looking to get a piece of a ‘property portal’, then Zoopla shares in many aspects are as good as any, but you should keep a close eye on the company’s upcoming challenges if you do so.

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