Despite the rumblings about whether or not Strike is going to make a bid for Purplebricks, the fact that Purplebricks’ share price has remained so low, closing at just 6.94p yesterday and having dropped to its lowest ever figure of 6.36p recently, suggests all is not well in the home camp.
By now, I’d expect to see carefree investors taking a gamble on Purplebricks’ shares at rock bottom prices and a raft of curious purchasers chasing after a bargain business, if they genuinely felt it was the future of estate agency. But the sums don’t add up.
This is a business that six years ago was worth a reported £1.7bn – and now stands at just £20m. By its own admission, it is expected to show a loss of up to £20m for the past financial year, hindered by the challenging trading conditions. Oh, how upset I’d be if I was one of its investors.
From research we’ve undertaken, we can see its stock level since January 2021 has dropped by 44.1%! That’s more than 8,000 less listings to sell. Their original goal was 10% market share which is now in tatters as their market share currently stands at just 1.6%.
Having failed with its overseas expansion, plus having set aside a considerable sum for lettings compliance errors, and also reportedly still facing a class action from former self-employed agents through Contractors 4 Justice, I can’t imagine its own sales particulars make attractive reading. If it can’t sell its own business, how can it sell properties, I hear you ask!
I stress I’m not offering any financial advice here, just observational commentary from someone who has been in this business for a very long time. Purplebricks has had a decade to prove its business model works – and it simply doesn’t, which is why we’re sitting here today waiting to find out whether Strike, which has its own financial woes, is planning to buy its rival or whether there’s another bidder waiting to give a slight nod of the head, like a last-minute punter at Sotheby’s as the hammer comes down. Strike has been given until May 10th to decide whether to make a formal offer or not.
The most curious aspect for me is why anyone would want to take on a property portfolio where the upfront fees have been banked and, no doubt, already spent. Clearly, there are some rich pickings with associated conveyancing and financial services and it will be interesting to see if Purplebricks is sold in its entirety or whether it will be chopped up into components.
It’s also gone very quiet on other potential bidders, like major shareholder Axel Springer, the German publishing giant. But then when you’ve already ploughed well over £160 million in a low-fee model that simply doesn’t work, why would you throw more good money after bad? And what do we read into the fact they’ve pulled their man off the board? Might they bow out completely and take a bath as far as their investment is concerned? It certainly feels like the business is heading to a watery grave. If they had faith in the future of the business, wouldn’t they stay on the board to protect their very depleted investment?
Perhaps Purplebricks co-founder Michael Bruce, who left the business four years ago to concentrate on Boomin, another venture that failed, is genuinely waiting in the wings, preparing to swoop in and save the day, like Superman preparing to rescue Lois Lane.
As for customers, there is nothing worse for confidence than when a business is on the ropes. Would you want to place your home on the market with an agency that is struggling? Or choose to work for it when its future is uncertain?
Recent analysis from the financial markets forecasted falling income, plus they’re burning through cash, despite their fee increase. Will their drive to digitise further and increase their lettings book happen quickly enough to make a difference?
My final point is this, for estate agents everywhere. Our costs are spiralling – whether from energy prices, lease cars, fuel, salaries, office costs, property portals, advertising and so on. We cannot sustain low prices, trying to compete with these failing low-cost models that have pushed everyone to the brink. It really is time to charge what you are worth. Let Purplebricks be a lesson to those who don’t.
If the current fixed costs of selling the average property is £2900 and you’re not charging that but have an in perpetuity commitment to vendors to list until sold, business trading regulations insist the cash to fulfil that obligation has to come from somewhere.
If after nine years the business has not fulfilled its projected ambitions of 10% of all transactions [by year 3] it’s an indication things aren’t working out as planned
I don’t know many people who would place any value on an opportunity that has quite an onerous millstone round its neck with no obvious strategic plan for changing what’s provably not working
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Again, someone that believes the business model doesn’t work.
There’s one thing that doesn’t work for certain – their marketing strategy. The online model does work, just not in the hands of the incompetent ‘dinosaurs’ that believe fee matters any longer.
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Just can’t see why anybody would buy this business – even the brand is now damaged in the eyes of the consumer – can this be rejuvenated? I don’t think so. The subject of fees goes beyond PB as too many businesses in the industry have believed that the only way to survive is join the race to the bottom. Look at average £s per transaction and how this has declined or barely maintained over the years when house prices and costs have all risen dramatically – makes no sense at all! The PB model has failed because they consciously took a high cost low fee stance and needed at least 10% for it to work – however many traditional businesses are also now struggling as their own low fee position can’t counter the high costs being forced upon them.
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If property transaction values rise at 6.9% average and the number of transactions is consistent the money earned by agents is greater and more profitable oif general inflation is 5% lower that transaction price inflation.
More cash = more competition and that’s what causes fee erosion .
Where the issue, for agents who drop their fees to win business, comes is when transaction volumes fall.
I monitor transaction prices and transaction volumes, in the 11 months prior to the Kertwang budget, agency income was down to the income taken in 2009. That wasn’t because of Truss/Kertwang but because the Stamp duty holiday caused artificial spikes in sales the previous year.
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I do not think most people who are not in the business know of PB travails
No one I know has ever mentioned it
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Interesting to see a few new FS recruits leaving after a few months -don’t like what they see ?
Not sure why anyone would invest heavily in this unless it was free of claims and the cash comes with it
my money is on Michael the Bruce
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PB plutoed years ago. It never ever made any money for investors unless they cashed in high share value based on flawed data and expectations, before the honeymoon period ended when everyone who was supporting the business model were showering praise trying to make it work and over valuing it with no stock, which has to be outrageous.
What did it offer ……. NOTHING that the industry was not already offering and this is the same situation today. PB are nothing new, they tried to buy the consumer on low fee’s that could not support the business with Commissary, which the public soon realised was more in keeping with Conmissary as often floated around.
They cannot offer anything new, there is nothing new they can offer. As for being on-line, well so are every other agent they have to compete with. PB are a dead duck with no future other than where they are today, a propped up business that is failing and offering nothing new to the industry to be competitive in a niche market. Yes a niche market, in this industry if you do not know what you are doing and understand the business inside out, you fail just like all the others have shown in the last ten years and before!
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The main issue is that it is us, the industry, that hates Purple Bricks, the public just see them as a cheaper alternative to getting the job of selling their house done.
The clever thing to do would be to buy the company and allow the opening of offices bearing the name Purple Bricks above the door, instantly recognised brand as far as the public are concerned……………………
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