Forget the extension. Shore up the foundations instead. On Tuesday Purplebricks replaced its chief executive and scaled back its international operations. The shares fell 8 per cent. The UK company still describes itself as “a world-leading hybrid real estate agency”. But its credibility as a digital disrupter has suffered devastating subsidence.
At its 2017 peak, Purplebricks was valued at £1.4bn, more than three times as much as now. Its model — replacing big commissions for selling properties with small charges for listing them — won fans. Neil Woodford, the UK’s most prominent fund manager, was an early supporter.
Since then, doubts have multiplied. Investors fear an old joke applies: “Did you hear the one about the estate agent that sold a house last week? Thought not.” Purplebricks says that more than four-fifths of homes listed on its website change hands. Analysts have disputed its claim. It needs to give more detail.
Purplebricks remains bullish about its model. But chairman Paul Pindar, former boss of outsourcer Capita, issued a grovelling apology over its “too rapid” expansion. Appropriately so. Only last July he talked about Australia becoming profitable within 12 months. In practice, it made no headway in a ferociously tough market.
Purplebricks also messed up with a hell-for-leather dash into the US. It has now reined back spending there. The US unit could get close to break even, staunching Purplebricks’ outflow of cash of £7m a month, says Berenberg. But without big advertising spending, Purplebricks risks being left with a zombie business in the US.
With fewer overseas distractions, new boss Vic Darvey, who joined from Moneysupermarket.com, can focus on the core UK market. Over the past 18 months, growth in listings has sharply slowed. His dilemma is acute. To secure more sales, he may need to incentivise self-employed local representatives. But the higher that cost, the more Purplebricks will resemble the traditional estate agents it is supposed to be disrupting.
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