Anaylst highlights threat to Moneysupermarket
SHARES in Chester-based online comparison site Moneysupermarket.com have fallen by around 10% this week following a warning by analysts Numis Securities of a potential threat to its profits from Google.
The US-based technology giant has recently been testing a price comparison site for credit cards, savings accounts and loans which is embedded within its search results. The site only appears when using particular search terms, such as “credit cards uk” and only a limited number of results are displayed.
However, Numis Securities warned that it could quickly be refined to provide a “credible direct competitor” to Moneysupermarket.
Analyst David McCann pointed to the fact that around a third of Moneysupermarket’s current revenues, or around £60m-worth, is from visitors who come to the site via Google – either through paid search or organically.
“What concerns us most is not the fact that there is another competitor (the industry has seen many new entrants over the years), but that Google accounts for a significant part of Moneysupermarket’s visitor acquisition strategy and may actively try to divert a number of these visitors to their own site.”
It points out that such searches on Google bring up a large pictoral link to Google’s comparison site at the expense of free search rankings, pushing them either to the bottom of screens or even off them.
It also points out that although Google has also conducted previous unsuccessful price comparison experiments before withdrawing them, its £38m acquisition of beaththatquote last year provides it “with the back-end, key staff and know-how”.
Moreover, although the comparisons being offered at the moment are only for a limited range of products, these could be easily replicated.
Numis said it could be rolled out to all of the product areas currently being offered by Moneysupermarket and calculated that up to two-thirds of its profits could potentially be at risk.
It has downgraded its forecast on the company from Hold to Sell, setting a price target of 99p on shares which had begun the week trading at 127p, but slipped to 114.7p by yesterday’s close.
Earlier this month, Credit Suisse took an opposing view of the threat from Google, arguing that it would have a “minimal impact” on Moneysupermarket’s revenues.
It said that only 6% of Moneysupermarket’s revenues were currently being competed against, and that it expected these to remain “largely intact” as the company continued to achieve strong levels of organic growth.
It increased its price target on the stock to 153p, arguing that it would continue to benefit from traditional spend shifting from traditional print media and from growing levels of internet use.
In February, Moneysupermarket.com reported that pre-tax profits for 2011 more than doubled to £24.3m (2010: £11m) and revenues grew by 22% to £181m.
