Unofficial Weekend Read: MoneySuperMarket

Felt cute so wanted to do a write up on Moneysupermarket:

Moneysupermarket was founded in 1993 in Nottingham by Simon Nixon, starting out as a weekly newsletter on mortgage deals (my man was making £10k/month posting letters…!). Moneysupermarket (MONY) has evolved to become what’s known as a price comparison website (PCW). PCWs are effectively insurance (as well as energy, loans, etc) aggregators, i.e. they show you a range of the cheapest deals. Whilst some worry that PCW commision fees are ultimately passed onto consumers, or that insurers buy their way to the top of results, the overwhelming consensus is that PCWs have championed more competitive, and therefore cheaper, pricing for consumers. The magic of their business model lies in its ability to generate repeat business :recycle:

The UK PCW market is dominated by a few websites collectively dubbed ‘the big four’: Comparethemarket, MONY, GoCompare and Confused.com - Comparethemarket being the market leader by most metrics. MONY, Gocompare and Confused.com (owned by Admiral Group) are all listed businesses :freetrade: Interestingly, Europe has remained immature as a PCW market (perhaps UK PCWs are too preoccupied with their domestic market?) , with Peter Thiel (famed early investor in Facebook and SpaceX) backed CompareEurope primed to dominate the continental market. Here’s a breakdown of market share by revenue :bar_chart:

As success ultimately is derived from traffic (more people = more policies sold = more commission), the PCWs have had to engage in an advertising war, which has led to some of the uk’s most memorable TV ad campaigns. For this reason, it is a good idea to keep an eye on PCW marketing spend.

This is a Super Smash Brothers game I would love to play :video_game:

Fun fact: ComparetheMeerkat’s campaign was especially ingenious; driving traffic to their site through Google searches of ‘meerkat’ rather than ‘market’ has made their online advertising cheaper, given the lower cost of the adword ‘market’. Also, Aleksandr Orlov is BAE.


The numbers

MONY’s share price performance has been pretty tidy over the past 10 years, roughly multiplying 5 times over. Using 2009 as a starting point is misleading, yes, but I can’t be arsed to dig out that 2007, 2008, data. Anyway, here’s what MONY’s money has done over the years :rocket:

MONY’s Fundamentals are in now small part down to how good they are at spending money to make money; I’m talking about the return on capital employed (ROCE). It’s often said a decent ROCE is anything over 15%… MONY’s is over 50%. They also have equally healthy profit margins (>20%), strong cash flow and sustainable dividend payments (yield sitting @ 3.31%). It’s price to earnings is hovering around a palatable 20. :moneybag:

Going forward, growth will likely come from MONY’s digitised mortgage service (think Habito); 55% of people overpay their mortgage by £294 - a huge market therefore. They have also invested heavily into their B2B proposition (revenue here growing ~30 YOY), which has led to a partnership with YOLT, a leading openbanking/personal finance app. MONY have a seasoned CEO at the helm, with experience from Ebay and John Lewis. The threat of disruption may well rely on management’s execution. :business_suit_levitating:


The Bear Case

Possibly the most prominent long term threat to PCWs is competition. Indeed, Amazon have been rumoured to be gearing up to launch a PCW in the UK and US. This could obviously have catastrophic implications for PCWs, but just know that a small company called Google failed to realise this ambition;
Google launched Google Compare in 2012, offering mortgage, credit and insurance comparison. They closed it down in 2016, struggling to make money despite a lot of web visits :face_with_hand_over_mouth:

image

Google Compare in action for Credit Cards.

Fintechs and Insuretechs are key threats. Brolly is an AI driven insurance aggregator app founded by an Aviva employee and backed by Peter Thiel. The app is effectively an insurance robo-advisor and hopes to become the way many buy their insurance. Other fintechs like Plum propose switching to a cheaper energy provider based on your transaction data. The use of smart energy metering could see data used in a similar way to disrupt PCW’s energy services. Autoswitching sites like Flipper (a GoCompare investee), which autoswitches your energy provider, have gained traction - although the incumbents are already responding. :muscle:

Marketing Spend is a key risk I’d say; heavy marketing is a must in this hypercompetitive space. A worrying trend is that PCW traffic is increasingly coming from paid search (e.g. Google Ads), which is hella expensive mostly because you often pay per click and visitors don’t necessarily buy a policy (“conversion”). This could chew up profits something fierce. :worried:

Another notable risk in my view is Regulators (OFGEM for energy, OFCOM for mobile/Broadband, CMA for market competition, etc), such as their negative view of MFN clauses - a contract for exclusive low price deals between individual insurers and PCWs, especially in motor and home insurance. This kind of regulatory pressure is good for consumers, but bad for PCWs. Often regulation benefits PCWs too, such as OFCOM recently making switching mobile networks as easy as sending a text. :ok_hand:

There’s also the standard risk of Brexit blah blah Uncertainty Blah Recession Blah blah Blah etcetera etcetera. :sleeping:

That’s all i’ve got - thanks for reading. Please let me know what you think; whether it’s to tell me how sad it is to spend my saturday morning writing this, how shit it is, or even just your favourite insuretech right now (Psst, mine’s Zego and Brolly)

Disclaimer

I have no affiliation with MoneySupermarket. This is not financial advice; search deep down, you know this to be true. This is not an official Freetrade weekend read either, although i’m a proud user; researched MONY and wanted to share is all - I love researching companies :star_struck:. Capital at risk.

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Thanks for post. I’ve not invested in it because I feel it may have had its day and there are lots of competitors. Growth prospects surely limited? Things move quickly online and i wont be surprised if google moved down this route too. That could really kill competition very quickly. The financial clout of Alphabet or Amazon is so huge they can assemble a developing team to come up with anything very fast

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Excellent writeup, you could go semi-pro.

In the same vein as MONY, Go Compare announced a partnership with personal finance/budgeting platform Money Dashboard, which is a competitor to Yolt, in 2018. https://press.gocompare.com/news/gocompare-partners-with-money-dashboard-to-strengthen-machine-learning-for-fintech-a-community-driven-machine-learning-initiative-for-fintechs

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Nice write up, thanks.

I’ve looked at MONY a few times - there’s no disputing the quality of their operating numbers. They are fantastic. Their business needs relatively little capital to start or to maintain, which is one reason the numbers look so good. However, the same applies to the competition.

My main concern is that they don’t seem to have any real competitive advantage - the “moat” that is often talked about…Rightmove is a good comparison I think, which does have that competitive advantage through its network effect. If you’re thinking about property - buying, selling, renting - you’re probably going to check out Rightmove.

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Overall, I feel the same way - I like everything about the business, but, like you, what makes it hard for me to open a position is that I can’t see a sustainable competitive advantage. Even if it’s just a rumour, the Amazon price comparison website threat is concerning, although I quite like the fact that Google tried to launch a price comparison website and failed in the past. Interestingly, Google also came under fire from regulators for manipulating their search results to drive traffic. That being said, Amazon are ace at just taking industries as they please.

I completely agree with you about the competition; The PCWs are getting attacked on all sides, mostly by startups as far as I can tell. That being said, I will facepalm myself unconscious if MoneySupermarket end up acquiring the companies i’m so worried about.

It’s spooky reading this - we have very similar thought processes! I love Rightmove as a business, I like their duopolistic position with Zoopla. I do believe though, with a disruptive enough proposition, a network effect driven moat can be eroded. My go-to example is Carwow’s success taking market share from Autotrader (who I view as “Rightmove for Cars” - same network effect driven moat, also a market leader, and have a marketplace-type business model). Carwow are far from dethroning Autotrader, though to be fair, but the disruptive potential of a reverse auction marketplace seemed to really work out.

But yeah, really having a hard time opening a position on MONY given the lack of a moat, I’m on your wavelength exactly there.

Thanks for the kind words, you’re awesome! :+1: Love the community here and just want to contribute :blush:

But yeah, GoCompare seem to be working really hard. Was interesting to read through MoneyDashboard’s pitch deck when they crowdfunded regarding the partnership. Just my personal opinion: In terms of partnerships, I think MoneySupermarket is stronger - my view is they want to be the price comparison plumbing/API for the fintechs that may ultimately disrupt them; Like Drivewealth’s relationship with Revolut, or Plaid’s relationship with numerous fintechs.

GoCompare are also investing left, right and centre in fintechs - I recall them investing in MortgageGym (which crowdfunded btw!) and also the autoswitching site Flipper I believe. So, in a way, disrupted or not disrupted, they’re kind of in a win-win situation I suppose?

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Great post, thanks for taking the time to write this up :raised_hands:t2:

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Thanks Phil, much appreciated :blush:

I’ve got dozens of notes like these on businesses I either did or didn’t end up investing in, would be interesting to tidy them up, post them, and see what people’s thoughts are; always on the lookout for tips/critique that sharpens up my research :face_with_monocle:

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Another opinion on MONY, this time from Motley Fool.

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Thanks for this and I’d echo some earlier comments that I think you could easily go semi-pro. I’m about to do a video on MoneySuperMarket, would you mind if I referenced this and some specific information within it?

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You’re too kind!

And ofcourse not, fill your boots! I only wish I wasn’t so lazy when it comes to collating my references, i’ll try and fish them out and edit the post - came across great information during my deep dive, alot of which I ended up leaving out.

I’m looking forward to the video, feel free to post it on hthis thread - I might miss it otherwise sry ><

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Are we talking postal mails?? :exploding_head:

Thanks for the write up. It’s great!

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Yeah, it’s really interesting actually!

He started a fortnightly magazine called ‘brokers update’ in ~1987, literally just photocopied sheets stapled together at first. Turned out that 10% were willing to pay, so he charged £11/month for a subscription, so he had 1k subscribers (mostly fellow brokers) when he was making £10k. At its peak, he had 3k subscribers, I.e. £33k monthly, but it was a more professional deal with more overheads.

When the Internet came around, Nixon’s subscription numbers started to stagnate. He got a mate to build “mortgage2000” (the precursor to Moneysupermarket) over the course of a year. This mate received 50% of the business, which he eventually ended up selling for £160m I believe - he had very little involvement after having built the website, so pretty decent return.

I think the story really shows Nixon’s entrepreneurial flair - he saw a gap in the market for this product after working only a few months as a mortgage broker, no one else managed to successfully bring such a product to market. His capacity to innovate and/or disrupt in the face of the dotcom boom Is something I also admire!

Appreciate the compliment BTW!

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Sure will. Hoping it will be finished this weekend! Thanks so much!

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