Business

Dreams of online estate agent Purplebricks turn to rubble

London Briefing: Market worth slithers to less than £400m as shares tumble 12%

As its shares soared after flotation in 2015, Purplebricks was valued at more than £1 billion at one stage

Fiona Walsh in London
Wed May 8 2019 - 05:15

Online estate agency Purplebricks came out fighting last year when a leading City analyst declared that using its property sale service was akin to "a £1,000 coin toss".

Heads, you sell your property; tails you don’t – but either way customers must pay Purplebricks its fees, which these days amount to £1,399 in London and surrounding areas, and £899 elsewhere in the UK.

For most properties, those fees are far lower than the percentage-based commission typically charged by bricks and mortar estate agents.

However, traditional estate agents take their cut only on a successful sale; if the property fails to shift, they get nothing.

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Despite the upfront fee, the prospect of a cheaper sale process has persuaded thousands of property owners to list their homes with Purplebricks since it was founded in 2012.

The company, which has no branches and likes to describe itself as a “hybrid estate agent”, floated in December 2015. As its shares soared, it was valued at more than £1 billion at one stage.

But its market worth slithered to less than £400 million on Tuesday as the shares tumbled 12 per cent on news of the abrupt departure of founder and chief executive Michael Bruce, accompanied by a major retreat from its overseas ambitions.

Retrenchment

Purplebricks is pulling out of Australia completely after less than three years, and plans a major retrenchment in the United States, where it once had ambitious growth plans.

It will now concentrate on the UK and Canada under new chief executive Vic Darvey, who has been promoted from chief operating officer. Darvey, formerly of the price comparison website, MoneySupermarket.com, joined the company just four months ago.

Purplebricks chairman Paul Pindar apologised to shareholders, admitting its push overseas had been too rapid and that the company was "very conscious" of the disappointing performance of the shares over the past year. They closed on Tuesday at 119p, way below their mid-2017 peak of 526p.

Opinion on Purplebricks has been deeply divided since the would-be market disruptor floated just over three years ago.

The company has been buffeted by a number of negative research notes questioning its business model and its sale success rate.

Earlier this year, it was forced to cut its revenue forecasts for the second time in two months and dispensed with the services of its UK and US chiefs as it reported more than doubled losses over the first half.

Purplebricks said yesterday that while the UK property market remains “challenging”, it continues to outperform the industry.

But what are the chances of someone signing up with Purplebricks successfully selling their home, particularly given the current depressed state of the housing market?

It’s a crucial question for potential customers as they weigh up whether to pay the set fee and risk no sale or face higher charges with a traditional estate agent.

The company has in the past claimed a success rate of 80 per cent to 90 per cent. That’s extremely high by industry standards and has left many unconvinced.

Success rate

One long-standing City critic is analyst Anthony Codling at Jefferies. Frustrated by Purplebricks' refusal to disclose how many properties it actually sold, he tracked its listings last year against official Land Registry data and found a success rate of little over 50 per cent – hence his "coin toss" jibe.

Codling also raised concerns about the firm’s accounting policies, specifically what proportion of revenues from fees should be treated as deferred income, given that vendors can apparently list their properties for as long as they take to sell.

Purplebricks came out fighting against his findings, saying it strongly contested the analyst’s figures and insisting its accounting policies were sound.

The company does have some heavyweight supporters, notably fund manager Neil Woodford, who has a near 29 per cent stake in the business.

Woodford, sometimes described as Britain’s answer to Warren Buffett, has defended the firm’s business model but his large bet on the shares has dealt a serious blow to his reputation as a stock picker.

Another City firm turned bearish on the company last month. Analysts at Berenberg, which had been recommending the shares as a buy, slashed their price target by more than 80 per cent – from 470p to just 80p – as they warned it had “flown too close to the sun” with its rapid overseas expansion.

The note appears to have been spot on, with Purplebricks now retreating in order to protect its core UK operations. By the look of the company’s share price performance yesterday, the Berenberg analysts could be on the money with their 80p target too.

Fiona Walsh is business editor of theguardian.com

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