Purplebricks abandons American dream to focus on its home market and Canada as the online estate agent’s losses swell
Online estate agency Purplebricks has said it will pull out of the US market and focus on its operations in the UK and Canada.
The group, which does not publish its exact sales figures, has already announced plans to pull out of the Australian market, amid ‘headwinds’ in the country’s housing market.
In its latest annual results published today, Purplebrick’s revealed it slumped to a £52.3million operating loss, against a loss of £27.8million a year ago.
The AIM-listed company is backed by German publisher Axel Springer. Embattled fund manager Neil Woodford, one of Purplebricks’ longest-standing investors, recently had to suspend his flagship fund and has cut his stake in the estate agent.
Purplebrick’s said revenue from its UK operations jumped by 21 per cent to £90.1million in the year, while operating profit from the UK increased to £5.3million, up from £2.2million a year earlier.
In early morning trading, the company’s share price rose 3.87 per cent or 3.6p to 96.6p.
A year ago, the group’s share price was at around the 323.2p mark. The shares fell to an all-time low in May.
The group admitted its rapid expansion into international markets over the last few years had been ‘distracting’, adding that the ‘product and technology teams have been stretched to the limit.’
The company, whose founder and chief executive quit in May after Purplebricks admitted it had lowered its standards while chasing rapid international growth.
Purplebricks said the bulk of its hefty operating losses stemmed from its operations in Australia and the US. In the last year, the group has also spent around £90million.
On the international exits, Vic Darvey, group chief executive of Purplebricks, said: ‘We have taken the difficult decisions to exit our businesses in both Australia and the US as it is very important that we now focus our resources on the UK and Canada, where we have a strong established presence and where there are significant opportunities to grow market share and deliver profitable growth for shareholders.
‘Both exits will be conducted in an orderly manner with the expectation they will be completed by the end of 2019.’
Exiting the US market is set to cost the group between £4million to £6million in its current financial year.
In total, the company’s gross profits, which reflect the the profitability of its day-to-day operations, increased by 61 per cent to £80million.
Within the UK, Purplebricks said it had become the ‘largest UK estate agent’. The group said: ‘Whilst the last 12 months have seen challenging trading conditions what’s become really clear is that we have a strong and differentiated business model that is hard to replicate.’
Honing in on the number of properties sold within the UK, Purplebricks did not provide precise figure, but said it sold ‘Subject to Contract 3.5x more properties than the next largest UK estate agent (FY 2018: 3.1 times)’.
The group said that 77 per cent of homes listed on its website sold, ‘completed, exchanged or sold subject to contract’, within a year, while 56 per cent sold within two years.
Within the UK market, the group also said it lists more homes over the £1million mark than ‘any other agent brand.’
Per instruction, the group said it raked in £1,243 in revenue, up from £1,168 a year earlier. The company expects this figure to rise further in the current year.
While Purplebricks is ‘optimistic’ about its prospects in the UK, it, and other estate agents, both online and bricks-and-mortar based, have been battling against a sluggish housing market, particularly in London and the South East of England.
Analysts and industry experts have been weighing in on what they think of Purplebricks’ latest exit plans and annual results. Some of their insights are less than complementary.
Colby Short, founder and chief executive of GetAgent.co.uk,said: ‘Purplebricks has put more gloss on their UK performance than a drunk decorator and no wonder, considering the monumental failures elsewhere around the world.
‘Now that they’ve returned from their international crusades with their tails between their legs, they will no doubt lining the City up for further investment to support their focus on the UK.
‘However, whilst they’ve grown revenue and claim they are ‘successful’ at selling, you just need to read between the lines to see that this success isn’t all it’s cracked up to be.
‘Although they are very vocal about their figures up until the sold subject to contract stage, their performance when actually getting a sale over the line remains shrouded in mystery.
‘There is a good reason for this and at a top-level, they have failed to gain any meaningful ground when it comes to the number of properties listed despite huge marketing spend.’
Emma-Lou Montgomery, associate director from Fidelity Personal Investing, said: ‘Purplebricks, the disruptor which set out to shake-up the estate agency industry seems to be doing little more than turning itself inside out. Today it announced it’s pulling out of the US, leaving it to focus on the UK and Canada.
‘Admittedly, it’s operating at a tough time in the UK and in its mere five years of existence there’s no doubt it has made its mark. Who hasn’t heard of Purplebricks in the UK? But it needs to do more than simply ‘be known’.’
‘It has big ambitions, but its reliance on traditional estate agents falling by the wayside – dubbed its ‘category killer’ by new CEO Vic Darvey – is a dicey one.
‘But with UK revenue up 21 per cent and group revenue up 55 per cent over the year Purplebricks is holding its own; even if the competition’s ‘house’ isn’t proving as easy to blow down as this big, bad wolf would have liked.’
Founded by Michael Bruce in 2014, Purplebricks was one of the fastest growing British companies, using a low-fee model to win business from more bigger, established estate agents, such as Countrywide and Foxtons.