A stock market commentator has given his backing to Purplebricks amid questions over the viability of its share price.
Writing on the Motley Fool website, Ian Pierce said the stock is highly valued at the current price, but the online agent could have a bright future if the strategy pays off.
He said: “Since going public in December of 2015, shares of hybrid online estate agent Purlebricks have rocketed 197% in value due to fast growth and huge long-term potential.
“But is disaster around the corner with the company still running a loss, embarking on ambitious overseas expansion and recently tapping shareholders for a £50m rights issue?
“I don’t think so.”
He cited Purplebricks’ falling losses and increasing amount of cash, adding: “While overseas expansion at this stage is risky it also represents the possibility of huge long-term gains. After launching in Queensland and Victoria in August the company already had 50 self-employed estate agents on hand and over £500,000 in sales in just the first seven weeks of operations.
“This tells us that Aussies are finding Purplebricks’ low fixed-fee pricing model as attractive as we have at home.
“Although investors may baulk at being hit up for £50m I reckon they’ll be thankful in the long run as this cash is being used to fund expansion into the massive US real estate market that pays out some $70bn annually in commissions alone.”
Pierce concludes: “Would-be investors should exercise caution because at its current price, Purplebricks is highly valued, which is always dangerous when it comes to loss making disruptors.
“But if its strategy pays off as well as investors currently believe it will, then the future potential is very bright.”
Comments (19)
@Property Pundit -A stagnant market will happen at some point as part of the market cycle ( I am not predicting one merely commenting on others who have pointed to when it comes), the point is PB is actually better placed to withstand a downturn in the market than most independent agents and any other corporates. Investors money is already locked into PB, the investment market will note that PB will emerge from such a period relatively stronger than most of its current competition and therefore will be just as enthusiastic to back the venture with further monies if needed. Even if PB ran out of money it would be saved by a corporate (Rightmove possibly) buying the brand. PB is here to stay in some form or another.
@DesRes87 – you talk of the stagnant market and events that will follow once it is ‘over’. When do you propose this will be and how long do you think investors will allow PB to hibernate for?
I’m not an investor or supporter of PB but it is about time the industry woke up and understood that a stagnant market will actually serve PB rather better than yourselves.
Think for a moment what they will do – firstly withdraw the costly advertising campaign, secondly they will trim down the number of employee’s in the central ‘support centre’, they will lose some LPE’s but that won’t bother them !, In effect they will be ‘saving money’ and sat on a big wedge of cash for when the market improves by comparison their competition;
You guys will insist on holding on to staff and overheads for as long as possible ( which is decent and creditable and human ), a number of you will fall by the wayside due to not having a sufficient wedge of cash to fall back on as sales revenue trickles in or the ability to raise sufficient monies ( PB will ).
Once a stagnant market is over hey presto PB restarts ad campaigns but now faces less high st competition. A bit of clever accounting and PR and they will have investors believing that the door to the marketplace is now wider than ever. The likely effect is that PB will ‘Retain’ their listings whilst high st listings will have diminished considerably as vendors withdraw listings to wait out the stagnation – net effect PB has ‘Gained ‘ market share!
For those of you that survive, take note that PB is attracting the middle portion of your market £200k-£750k properties ( 56% of their stock) representing at 1% commission £22 Million in ‘lost’ potential commissions to the high street sector. When business levels start returning PB will still be draining the high st economy of potential commissions making it a steeper hill to climb than previous recessions.
The fallacy of thinking is the belief that rules in the ‘small world’ apply equally to the ‘large world’ but they don’t – nature is a good example – think quantum mechanics
They charge a ridiculously low fee to sell your house – not even a third of what some agents charge, they have TV adverts, web adverts… I just don’t see how they can keep up running at a loss – We’re located in NW London and have taken about 4 instructions from Purple Bricks in the last month so they may be taking them on, but they are not selling as much as people think!
You don’t need to go back to school to work out that getting on for £20m invested todate in the UK with nothing paid back, based on their sale figures and charges is never going to be paid back and then add in the ongoing costs. The business is non-profitable for investing in? Yet they have now raised another £50m from investors. I presume all their investors live in bungalows!
Ros can you ask PB whether any of the £50 million recently raised shall be used to prop up the UK and OZ businesses as the cash reserves for these two must be falling sharply?
If so, how much has been allocated to USA and how much to the UK and OZ?
You know what they say when you get to the top of the hill, there is only one direction to go. PB has so far failed to make a return for investors, when will they wake up? When will the market wake up? and they are asking for another £50m!
They have already asked for and received £50m.
Lemmings comes to mind. The only reason why anyone(s) would want to invest such an amount is the stock market comments. Hide the fact that it is making £millions loss and no dividends. Is this more a case of stock market brokers earning £m’s off a damp squib? Criminal.
Nope, it’s more to do with investors thinking PB is a multi £bn company in the future and believing the potential upside is far greater than the downside. They are not hiding the no dividends and aren’t able to hide that they are losing millions so investors are well aware of the risks. They just think that a business model which is growing whilst the market is contracting is probably better placed to ride out the storm than businesses that are contracting, engaing in price wars and generally struggling to explain to customers the “value” of what they do.
happy to help
With transaction levels dropping by 20% and more and less and less new stock coming to market how long will the LPEs hang around?
this will find its level
Except they are growing whilst the market contracts. Taking more and more away from local agents.
If local agents work on something like 10-15% profit margin per year, it doesn’t take many properties to go the way of PB before real pressure piles on local agents and their bottom lines.
I’m not rejoicing in this fact, just stating that agents more than ever need to show the reason they cost so much more than PB.
I’m still trying to buy a house and sent 7 requests for a viewing from Rightmove last Friday.
So far 2 responses from local agents…5 unresponded to.
“This tells us that Aussies are finding Purplebricks’ low fixed-fee pricing model as attractive as we have at home”
Where is the evidence to support that statement? There has always been a cheapest agent, the only thing that has changed is who the cheapest agent is. Replacing a cheap estate agent with an internet listing firm isn’t actually much of a change.
Some people want a cheap deal on fees, they will whack their home on the internet for £1060 average to save 1.04% ( £2828 average) and then watch as the price is reduced multiple times in tranches of 2.1% (£5670 average) to get it bumped to the top of portal listings for a day and sent out to applicants who don’t bother reading the email notification of price reduction.
If it costs 1% to sell the average property and some genius works out charging 0.39% is the way to disrupt the market but only 3.6% of home sellers get the concept how long are investors going to wait before the penny drops that profits aren’t going to come along anytime soon?
‘as the price is reduced multiple times in tranches of 2.1% (£5670 average)’
To my mind, this is also a terrible way of selling, the asking price initially missing what would have been the best target audience, many buyers knowing they are being chased rather than them chasing the property, and many more being alienated by believing the drops in marketing price represent a ‘problem with the property’.
especially when one of the portals then documents the desperate attempts to find a buyer and the consistency of programmed reductions. Any half savvy buyer will sit there another 2 weeks and save themselves another 2, 4 6 up to 30% off the often unrealistic guesses at value that are designed to schmooze a vendor’s ego and expectation. Internet listings for people who don’t do maths or think things through
Third line from the end is a very little word with a very big meaning “if”
Pundit certainly knows how to cover all options .Certainly cant tell his kangaroo from his wallabies confusing the word sales with revenue
I don think revenue of £500k which equates to £10k per LPE and doesnt touch the sides of admin. or advertising tells us much more than the traps are open and the battleship is out of the harbour with the jury still being out. All he seems to say is if its going to be a success then its going to be a success!
£500, 000 sounds good but they burn that in advertising every month. Tbf though , how us and aus. agents have been able to justify 6% over the years is incredible.
Maybe PB have already got bored of UK as people are already onto a great thing with 1% that most agents charge.
I think i know why online isnt really taking off.
The internet has been utilized to help people. i.e. amazon having millions of books to choose from is a good thing.
Trying to pursuade people that an estate agent doent do anything is just a lie, but it probably resonates with brexit type anti establishment angry people.
“US real estate market that pays out some $70bn annually in commissions alone.”
What does UK market pay out in commissions every year..be interesting to see Purplebricks turnover against this figure..iam gusessing 0.2%..WOW ,,DISRUPTION…