Moneysupermarket starts low, heads lower

The valuation of Moneysupermarket was always going to be rather an inexact science, as Lombard noted earlier this month. But founder and chief executive, Simon Nixon, told Reuters on Thursday that he was not disappointed with the pricing of the company’s IPO: “It’s in the range and as the largest Internet IPO in Britain we fell pretty happy given the current climate.”

The financial services price comparison website had earlier said that its offer price had been set at 170p a share, right at the bottom of the 170p to 210p range, giving the company a market value of £843m – shy of the nice, round £1bn it was hoping for.

As conditional dealing got underway, Moneysupermarket didn’t stay in its valuation range for long. By mid-morning, shares were changing hands at 155p, almost 9 per cent below the offer price. Advisers said that the pricing and market reaction reflected the poor appetite for equity issues since the range was set two weeks ago.
Nixon’s comment is telling. Is Moneysupermarket an Internet/media stock? Or a financial services stock that happens to be online?

If it’s the latter, then the aggregator is susceptible to a revenue slowdown as growth in its underlying market falters. USwitch in the UK, and MoneyTree, the US mortgage aggregator, have both suffered in this fashion.

Moneysupermarket’s revenues are forecast to grow from £104m in 2006 to £300m in 2011, at a time when the underlying providers of content to the site, the banks, are likely to be feeling the squeeze.

The company is also likely to face increasing competition from the likes of Tesco, and even future aggregators of aggregators. That, suggested analysts at Clear Capital in their pre-IPO research, will only increase marketing spend, and technology costs as sites seek to differentiate themselves, and make it fiendishly difficult to generate any growth in profit margins.

Moneysupermarket unquestionably has a leading position in its sector – with as much as half of all traffic. That in itself should bring pricing power as the market develops. Bankrate, a leading US site, has increased the pricing on its click through traffic twice in the last year. And the proportion of advertising budgets in financial services going to online aggregators is only set to rise.

But the environment is only set to get more difficult for the aggregators – as they seek to retain the loyalty of their inherently flighty customers amid tougher competition.

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