A high-profile investment advice service says as OnTheMarket nears two years listed on the stock market it “has yet to deliver a shred of value.”
The Motley Fool - a shares website written by a number of selected analysts - says that in its interim results in October OTM described how branch numbers were up 28 per cent in the year and the portal had seen a 75 per cent increase in site visits.
But it says that when it comes to leads, OTM has disappointed compared to the rival it most strongly criticises, Rightmove.
The Motley Fool puts this down to the OTM business model.
“The company wanted to compete with Rightmove in the online housing market, and to incentivise estate agents to sign up, the company gives away shares in the business to those estate agents who joined.
“This means that the more estate agents sign up, the more dilution there will be. Dilution is important because the number of shares in a business is crucial – anyone who is a current shareholder sees their percentage ownership in the business diluted when new shares are issued. As the price gets lower and lower, more and more shares need to be issued to the estate agents that sign up. It’s a negative cycle of destruction.”
The advice service also warns of OTM’s cash position.
“When a company is investing for growth, it usually relies on a series of fund raises from investors in order to keep the lights on and invest in the hope that one day the company will turn a profit. But the [OTM] cash balance at the end of September was £8.6m. The company made a loss of just under £7m in the six months ending 31 July 2019, and they burned through over £6.5m in operational and investing activities, which we can see on the cash flow statements” says The Motley Fool.
It continues: “If we do the maths, then it doesn’t take a genius to see that the company is likely going to be out of cash by the end of March. That means another fund raise – and these fund raises are rarely at a premium to the current price.”
It says Rightmove merely needs to lower its prices “to strangle OnTheMarket into submission.”
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With the majority of shareholder being agents they are happy with the share price as long as the product is performing the long term view is exit Rightmove and many agents will benefit.
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