Speculation is mounting that online agent Purplebricks, less than two years old, is to launch on the stock exchange very shortly with a valuation of £230m.
According to reliable sources, however, the firm has placed only 20% of that valuation with investors, for £50m.
It means that shares in just 20% of Purplebricks will be available for trading – with the likelihood that trading may be limited, as new investors may be reluctant to sell.
They will have had what could be described as a Dragons Den moment, where the dragons typically decide to back a relatively small proportion of what is usually a new company with a relatively large investment.
While it is relatively unusual for firms to make a stock market debut offering such a low proportion of its valuation, what it does do is validate that valuation and in doing so, send out messages to the market.
Purplebricks, valued at £230m and launched some 18 months ago, is now worth about one-third of Countrywide.
The valuation of Purplebricks may also prove unsettling for the likes of Countrywide and LSL, who have yet to announce their online strategies.
The launch of Purplebricks is likely to be on AIM according to sources, and will come just days after the Treasury announced that there will be a consultation in the New Year about how to encourage innovation into estate agency, including online-only agents.
Purplebricks does describe itself as having a hybrid model.
A spokesperson for Purplebricks was invited to comment but declined to do so.
Whilst PurpleBricks aren’t the first OEA they are following the classic ‘first adopter’ strategy of bringing in huge investment so that they, and their investors, can hopefully smother all other potential competitors with massive continual advertising and emerge as the national brand name market leader.
During the expansion and establishment period very few of these first adopters turn a profit, nor do investors expect them to, which means that valuing the business pro rata to investor shareholding is not relevant.
Amazon, Ebay, Facebook and Google are the definitive examples of the strategy PurpleBricks is following but there are many more less well known examples. None of the aforementioned companies turned a profit for years.
Those EA’s laughing at PurpleBricks and their investors will end up the laughing stock.
I’ve repeated on here for nigh on 18 months that the only reason why onliners had just a 2% market share was not because buyers don’t want their service but because so few knew the service existed.
PurpleBricks especially, HouseSimple and Emoov with their TV advertising are accelerating awareness of OEA’s at an exponential rate and any traditional EA who believes this will all fizzle out is either sticking their head in the sand or showing a huge lack of business acumen.
Whilst there will always be a role for traditional high street agents, of which I am one, the real sea change that public awareness of OEA’s will bring will be in attitude towards sale fees.
OEA’s will turn the focus on fees from the traditional % to ££££’s paid.
More and more, sellers will ask “but how much will I actually pay” and compare that to the fees that they have seen on TV.
Any traditional agent who fails to see that will bring downward pressure on their sales fees, irrespective of the local service offered, is again in my opinion deluding themselves.
Add in the fact that the Government intend to encourage OEA’s and we truly are at the start of massive changes in our industry.
There will inevitably be massive successes … and massive failures to.
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Its like the Millennium bug all over again, how is anybody falling for this
Does the prospectus state ROI 2099 (if your lucky) 🙂
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I feel like i’m on an episode of Dragons Den… £230m!! Where did they pull this figure from, its just nuts
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Purplebrick owners must be feeling rather pink!
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There used to be a time a business was only worth its capital but now its all based on assumptions and forecast. Interestingly the banks are not allowed to get away with assumptions anymore!
Harree has a point about this style of business model hitting the High Street agents. As with a lot of internet today everything is going price v value and while one waits to see if it works (often not) fighting over the business as an income loss leader, leads to those that haven’t the resources to survive fall by the way side.
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Now what will the incumbents do? Too late to build your own and nothing worth buying that has no traction with consumers. Connells a step ahead with Hatched but that will die on the vine fairly quickly
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Countrywide £898m
Zoopla £1b
Emoov £20m
Hatched £4m
Purplebricks £230m
Someone please explain how this works.
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Just pluck a number and hope nobody questions it!
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Not too far off.
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They are data businesses that earn quite well out of acquiring data which they either use to spam people their own services or flog on to others so they can send spam.
Data firms are currently selling for 40x profit as a consequence of the ultra low interest rate. The **** hits the fan when someone works out where they are getting the data from.
I recently got a bit of spam from Taylor Wimpey on a brand new email address not authorised to be shared, I have used subject access rights to trace the email share back to a single firm, I am just waiting to find out how they came by the address.
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£4m for hatched?! You must be kidding! If that’s even close to accurate Connells had their eyes taken out
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As more and more forecasts of profit get missed (I’m sure some of these OEA would yearn for break even), it will get harder and harder to fund raise.
There are only so many times you can sell a dream before people realise that pumping millions into marketing where every customer loses you money, isn’t good business.
Lots will hope to be bought out before going bust – others will hope to the first lastminute.com to cash in before the tulip bubble bursts.
The government might hope that 2016 is the year of online agents, but I think it will be the year when the chickens come home to roost.
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Its partly ‘the emperor’s new clothes’ and also envy from all those who didn’t invest in Google! I actually know someone who did – they smile lots.
I will be immensely interested to see the prospectus should this rumour prove true. Purple Bricks will need to succeed. If it fails, and in my opinion being the best of the online offerings, the effect on others with hopes of flotation will be catastrophically and irreparably damaged.
As such, you can understand the sense of urgency so perhaps this news isn’t such a surprise, rather a first strike. As Glenn says, there are only so many times you can sell a dream before someone wakes up. I wish them well.
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