Rightmove vs CoStar, AppFolio vs Yardi, Analog & TXN, CDLX, TRUP, Equipment Rental, Dino, CPRT, PRKS, Clarivate

Content Published Last Week

1. Rightmove vs OnTheMarket: Agency Perspective

2. AppFolio vs Yardi Voyager: Enterprise Customer Perspective

3. Analog Devices & Texas Instruments: Semiconductor Market Dynamics

4. EquipmentShare: Competing with Sunbelt and United Rentals

5. Cardlytics: Operational & Tech Stack Challenges

6. Trupanion: Aging Cohorts Risks

7. Copart: Salvage Yard Operations

8. Dino Polska & Polish Grocery: Navigating A Deflationary Environment

9. United Parks & Resorts: Pricing Optimization

10. Clarivate: CPA Global Acquisition & Integration

Rightmove vs OnTheMarket

Last year, CoStar purchased OnTheMarket, the 3rd largest UK property portal, with the aim to knock Rightmove off the top spot. CoStar paid £100m for the portal and has since pledged ~£50m to build OTMs brand with end users and onboard housing stock from agents.

The UK property portal market is a neat illustration of a power law: RMV has ~85% market share compared to ~15% for the rest of the market. The majority of RMV's ~85% traffic is also direct and unpaid.

close

Zoom InZoom OutReset

However, with such high market share typically comes aversion. Historically, the agent perception of RMV is one of adding less and less value and charging higher and higher prices. Many agents are now welcoming CoStar:

Some are still upset about it. Some who left had to return, realizing they needed to be there. I have agency friends across the country who are frustrated with the high costs of Optimizer packages. If they want extra advertising, it costs them even more. From the WhatsApp groups I'm involved in, I can see some of them are reducing their packages, possibly due to CoStar. They're willing to go down to the most basic of packages. It's a significant decision for some of them, but I'm interested to see how it plays out. - Managing Director of UK Agent, Customer of RMV and OTM

In last year’s CMD, RMV’s new management team laid out a plan to move down the home transaction funnel and add more value to both agents and end homebuyers and sellers. This aims to unlock revenue opportunities and cement its positioning as the leading UK classifieds property portal:

close

Zoom InZoom OutReset

We’re interviewing multiple UK agents to understand how OTM is attempting to compete with RMV. The first interview in our series is with a leading Midlands-based agent who spends ~£9k per month on RMV but has recently onboarded OTM. This interview walks through the agent’s unit economics, cost per sale on RMVs Optimiser Package, and how OTM is aggressively onboarding new housing supply across the UK.

AppFolio: Enterprise Customers

One of the key questions of our APPF research focuses on the opportunity and challenge of moving upmarket to win larger 5,000+ unit Property Manager customers. We interviewed a Director at a larger property manager who previously used Yardi Voyager and now is an Appfolio Max customer.

The interview explores the differences in screening, maintenance and other value-add features offered by Appfolio Max and Yardi Voyager. Although APPF is rapidly adding functionality, the reporting and accounting functionality still seems inadequate for larger customers:

AppFolio wasn't as comprehensive as it is now. It seems like they're constantly adding new features. However, it's also evident that they're relatively new. The box score summary, for instance, has been inconsistent. That was my primary report through Yardi. The fact that AppFolio can't maintain a consistent box score summary indicates their novelty. It provides an overview of everything that occurred, either company-wide, portfolio-wide, or property-wide, within a specific timeframe. For example, at Orchard from Saturday to Friday, we had 27 guest cards, six scheduled showings, five actual visits, and two applications. I'm sure I could create a report in AppFolio to get this information, but it's not as straightforward as it should be with a box score summary. - Director of 2,000 Unit Property Manager, Customer of APPF

The interview walks through feature differences and explores where Yardi is catching up with Appfolio and where it struggles. Also, the interview shares more important insights on the dynamic of Appfolio's payment revenue generated from tenants.

APPF's ‘Value Added Services’ revenue line, of which the majority is payment revenue, is ~75% of total revenue and has doubled in the last 2 years.

close

Zoom InZoom OutReset

The recent growth in 'Value-added Services' revenue is driven by the $2.50 ACH payment fee added in July last year. Payment revenue is split mainly by ACH and card fees, including both credit and debit card payments by tenants. This quote from our interview was interesting:

I believe the fee for credit card payments was around 3%. This applies to both credit and debit cards. AppFolio has a different pricing structure, but with Yardi, if you pay with a card, there's a flat fee. I'd estimate around 60% to 65%...a significant group of tenants without bank accounts prefer to pay with credit cards. - Director of 2,000 Unit Property Manager, Customer of APPF

A high proportion of credit card payment revenue can lead to problems:

We have encountered a recurring issue with credit card payments through AppFolio. There are instances where we observe that all the credit card payments have been reversed. This usually happens when a client claims fraud on their credit card, and AppFolio retracts the money. We have had numerous intense discussions about this issue. We are talking about thousands of dollars being taken away from an owner. The question then arises, how do we file criminal charges? This is theft. AppFolio assures us that they are doing their best, but it seems they don't do much. I believe they are making a significant amount of money from these fees. They are not affected when someone disputes a charge as fraudulent. AppFolio still gets their money, and we end up being the losers. - Director of 2,000 Unit Property Manager, Customer of APPF

It seems the majority of APPF FCF is driven by a take on rental payments processed through its platform. Given APPF is taking a % of credit card payments, not a fixed fee, a significant chunk of payment revenue is also specifically driven from credit card payments:

We did the calculations when a tenant called in to complain about being charged $36 for a $1,051 payment. I confirmed that it was the correct percentage and offered him the options of paying $9.99 or $2.99. He chose the $9.99 option. - Director of 2,000 Unit Property Manager, Customer of APPF

If not managed carefully, this could misalign incentives between tenants, PMs, owners, and APPF. It also adds potential risks to APPF if regulation or landlords prevent tenants from paying rent with credit cards. This interview explores the payment risk in more detail and compares with Yardi’s pricing structure. This topic is an area of exploration for us this quarter.

Analog Devices and Texas Instrument

One potential moat of Analog and Texas Instruments over Chinese competitors is the certification requirements, legacy, and brand loyalty from their long history of serving industry and military sectors. However, cheaper foreign competitors may still pose a problem. In this interview, a former Senior Manager at Analog Devices sheds light on the semiconductor competitive landscape:

Industrial, automotive, and military sectors require extensive certifications, even x-raying the products and understanding their purchase history. If there's any doubt about the reliability of a product, it's a problem. It takes a lot to convince these sectors. That's where companies like TI and ADI have an advantage over competitors. They've been around for a while, and that means something to those who have been designing with these vendors for so long. It may sound cliche, but brand loyalty is still very much a factor. - Former Senior Manager at Analog Devices

EquipmentShare: Competing with Sunbelt & United Rentals

EquipmentShare is aggressively scaling its network to compete with Sunbelt and United in the US equipment rental market. Founded in 2015, the company has raised ~$4bn in debt and equity to buy new equipment, open greenfield branches, and develop its T3 technology platform. It has ~220 branches compared to Sunbelt’s 1,200+ and United’s 1,400+.

At scale, the large equipment rental companies all buy similar equipment, from the same OEMs, at similar prices. The density of each network and overall service may change, but it’s the same equipment on rent.

Everyone has new equipment now. So, for a customer, it's the same pitch that every salesperson or company uses. No one walks in and says, "We don't really have good equipment." Everyone claims to have the best equipment. Does the brand matter? If you ask anyone at Cat, they'd say it does. But in the general equipment rental business, not so much. Everyone's equipment is pretty good now. This is evident when you look at Sunbelt, United, Herc, and H&E. They all carry the same brands and buy everyone's equipment because you get what you can. - Former Regional Manager at EquipmentShare

EquipmentShare aims to differentiate itself by offering its proprietary T3 telematics platform to save customers cost using its equipment. The biggest cost leak in equipment rental is idle units. T3 provides real-time dashboards for customers to drive utilisation.

close

Zoom InZoom OutReset

And it appears to be significantly more effective than OEM or competing solutions:

T3 is their telematics system. Compared to everyone else's systems, it's absolutely the best in the rental business. It's excellent. The concept of telematics originated with the advent of GPS. Initially, we didn't even refer to it as telematics, but rather as GPS. Most manufacturers now incorporate some form of GPS system into their equipment, primarily for theft prevention and recovery. However, it doesn't offer much beyond that, and its performance is not always optimal. Many of these units are battery operated and their performance can be inconsistent. EquipmentShare is largely centered around T3, their proprietary telematics system. All their maintenance and tracking is managed through T3, which offers a wide range of functionalities. They also sell this product to customers. I have customers who use T3 on their own equipment. They sell this system to private contractors for their gear as well. - Former Regional Manager at EquipmentShare

This interview explores EquipmentShare’s history, business model, and strategic growth plan in more detail.

Copart

While owning unique plots of land is deemed to be a core part of Copart's competitive advantage, it may be of limited use if not combined with a customer-centric approach. By deciding not to charge storage cost to insurers for their totaled cars, Copart made it increasingly difficult for competitors without an established yard footprint to compete. Given the lack of space, towing service companies typically charge insurers to store vehicles at the repair shop, incentivizing insurers to move the car to the closest salvage yard to save towing fees. CPRTs yard locations, relatively lower cost per sqft, and customer focus on reducing costs to insurers makes it difficult for its US competitors to get an edge:

Let's say the tow fee was $100, and the car stayed there for ten days before the insurance representative inspected it. That's $40 per day, adding up to $400. So, the total would be $500. However, insurance companies often declare these vehicles as total losses over the phone. They'll send a picture and instruct to tow it to Copart. This is because repair shops charge for storage, while Copart does not. Therefore, they prefer to move the car out of the shop to avoid storage charges. - Former Operations Manager at Copart

In this interview, a former Regional Operations Manager at Copart sheds light on the how CPRT has organised its yards and other operational nuances that provide a potential structural advantage.

Cardlytics

During the past five years, Cardlytics has faced a multitude of operational, technical, and management challenges. In this interview, a former VP of Operations at Cardlytics shares details of each challenge and how the new management team is approaching the task ahead:

Our business model is complex. Each bank operates as a unique offers platform that we consolidate into an ad platform for advertisers. There are nuances to things like Chase adding new creative capabilities and better imagery, and logos versus Bank of America required building two separate operating paths for a while. We had to refine and consolidate that into a streamlined system, which was a recurring process. However, we did spend two years in that phase. There was a lot of early talk about new capabilities, the products we were building for the market. To be completely honest, a lot more time was spent on stabilizing what had been built and dealing with the tech debt of what had existed. It was a bigger task than a lot of the organization realized, to clean up the foundation we had built so that we could continue to build better and faster. - Former VP of Operations at Cardlytics

Trupanion Risks

As Trupanion's book ages, more pets become older and costlier, while the healthier ones may end up dropping out. This potentially degrades incremental cohort economics as fewer healthy pets subsidize sick pets, forcing Trupanion to increase prices to remain profitable.

But there is another factor that affects everyone, regardless of age. It's the duration of a group of policies. Consider an average policy, not just one, but say 1,000 policies. You sell 1,000 policies, regardless of the age, and then at the end of that, you maybe have 750 policies, and then after that, you have 650 and so on. Over time, who do you think is staying and who do you think is cancelling? The majority of those who cancel have not had a claim. So, your pool of policies is now skewed towards those that are claiming. Trupanion also experiences this impact. This was probably not predicted in their level pricing. Therefore, they have to increase their prices to reflect this. - Former President at Chubb

In this interview, the former President of North American Digital Consumer Division at Chubb sheds light on the effect of aging cohorts on Trupanion's business model.

Dino Polska Competitive Threat

Dino Polska, the leading Polish grocer, is down over 20% YTD. We've been following the company's rapid growth for years and the market seems to be questioning it's structural advantage.

Low prices may not be enough. Being close to customers matters. Competitors such as Żabka Polska are growing in the face of larger, more established players by focusing on convenience and proximity. This may require larger players like Biedronka and Dino to face the onslaught of smaller players rapidly opening stores:

Poland actually has the highest number of 'mom-and-pop' stores in Europe. This is because the Polish people are very entrepreneurial. It's a fact that many of these stores close each year because they can't survive. However, there is still a high rate of 'mom-and-pop' stores. This indicates that there are still opportunities for growth in the Polish market. Even with Biedronka having 3,600 stores, Dino having more than 2,000 stores, Lidl having nearly 900 stores, and other players, there is still room to increase the number of outlets. This is something that Dino is still doing. They've even announced that they will open more stores annually than they did last year. Your question is very interesting because, while these 'mom-and-pop' stores have higher prices, there is still a market for them. Let me give you another example. There's a brand in Poland called Żabka, owned by an investment fund. Żabka is a format very similar to 7-Eleven. They've developed a lot in the last years. The brand has been around for over 25 years, but when the investment fund took over, they significantly increased the number of stores and improved the quality of the stores as well. They now have more than 10,000 very small stores, each around 30 to 50 square meters. Despite their high prices, they still attract customers. - Former COO at Biedronka

In this interview, the former COO of Biedronka sheds light on the evolution of the Polish grocery retail market and how the different players are adapting to a deflationary environment.

United Parks

A lack of structural volume growth is leading US theme park operators to focus on pricing to drive revenue growth. A Former Revenue Management Executive at United Parks & Resorts discusses pricing tactics, experimentation and theme park pricing power in detail

Interestingly, we noticed that even when we offered two-day tickets at the price of a single-day ticket, we still sold a significant number of single-day tickets. This indicated that we would always have a market for single-day tickets, regardless of the pricing of other ticket types. This led us to believe that we could be quite aggressive with our single-day ticket pricing. - Former Revenue Management Director at United Parks & Resorts

Clarivate

Clarivate is a $5bn Information Services company that pursued an aggressive M&A strategy before listing in 2018. A Managing Director of one of its biggest acquisitions, CPA Global, explains the business, cross-selling opportunities and integration strategy the company follows:

One of the issues with the Clarivate acquisition was the assumption of cross-sell potential based on a Venn diagram of two products, Derwent and Innography, without considering why customers chose one product over the other. - Former Managing Director of CPA Global

Over the last decade, Clarivate deployed close to $15 billion on M&A and currently trades at a $10 billion EV. Whether it can realise economic value from such acquisitions is a question of exploration.