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
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 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
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
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.
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
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.
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.
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
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.
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.
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.
There’s also the standard risk of Brexit blah blah Uncertainty Blah Recession Blah blah Blah etcetera etcetera.
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)
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 . Capital at risk.