Zoopla shares: should you invest in the property portal?

In early trading, Zoopla shares were 7.7 per cent above the initial price at 237p. Is now the time to invest?

Properties in London
(Image credit: 2014 Getty Images)

Zoopla's shares rose immediately after the company's initial public offering this morning, giving the property website a market value of just under £1 billion.

The company, part owned by the publisher Daily Mail and General Trust, priced its London flotation at 220p per share this morning. The figure was below the midpoint of the price range, set at 200p to 250p per share.

Shares in the company were trading 7.7 per cent above the initial price at 237p in early conditional trading, giving Zoopla a market capitalisation of about £990m, The Financial Times reports.

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Unconditional dealing in the company's shares will begin on 23 June. Will they make a good investment?

What is Zoopla?Zoopla is an online property portal that covers the British residential property market. The site helps users find information about sold house prices and area trends, and offers estimates on the current value of properties.

The company has acquired and merged with a number of other property sites including Primelocation and FindaProperty. Across the entire portfolio, Zoopla's sites receive more than 40m visits each month.

Is Zoopla a safe investment?According to the FT, the property site has "expanded alongside the resurgence of the UK’s housing market". Zoopla's revenue comes largely from estate agent advertising subscriptions. In the six months to the end of March revenues rose 26 per cent, The Guardian reports.

But according to ProactiveInvestors' Jamie Nimmo, some analysts believe that the flotation comes at an inopportune moment: "Questions have been asked about the timing about the float given the recent instability in the IPO market".

The Guardian agrees, noting that some experts think that investor interest in IPOs is currently low and that the housing market may soon slow. "Investors' appetite for flotations has weakened in recent weeks while concerns have increased that the housing market is overheating," The Guardian says.

Could fears of a "housing bubble" damage Zoopla's prospects?Zoopla founder Alex Chesterman said last month that the notion the UK is in the grip of a housing bubble is incorrect. "I think the questions around the property market and talk of a bubble are unfounded and premature," he said. "The market has seen a strong recovery over the last 12 months but by no means has it fully recovered and we see continued recovery over the next three years."

According to Chesterman, the long-term prospects for a site that "provides consumers with a wealth of property data while charging subscriptions to estate agents" are strong.

"The reason we are doing this process is that there is a great level of interest and excitement about our business which is a well-understood business model," he said. "It is high growth, high visibility, high margin and very cash generative."

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