With a downward swing in its profits of almost £50m in just one year, it’s getting increasingly hard to understand how Purplebricks can survive, not least with a recession looming.
Its newly released annual accounts show that its reorganisation has taken it from a £6.8m profit last year to a £42m loss – at a time when the market was the best it has been for a decade.
It reminds me of when Countrywide were heading in the same direction, only to be rescued at the last minute by Connells. Who will come to Purplebricks’ rescue? Not the shareholders, of that I’m certain, with the share price hovering around the 15p mark.
I’m also truly curious about the decision made by Non-Exec Chairman Paul Pindar to buy 2.5m shares on the same day the results were announced. Isn’t that like taking a sack of £50 notes and setting fire to it? One City analyst has said it is not forecast to become profitable over the next three years. Can they last that long?
Purplebricks’ USP has always been the lowest fee. They were the cheapest, but not any more. They always talked about being tech led, how can they be tech led without a significant investment and constant innovation in technology? How can you grow a business when you’ve cut head count and marketing? How can you cut costs and still deliver? So the CEO’s 2023 prediction could be tough to deliver.
Their new fee structure is still way too low, and in my opinion – as someone who set up an online-only estate agency and couldn’t make it work – they need to double it, at the very least.
Then they’re up against thousands of traditional estate agents with, what I believe, is a poor infrastructure to cope with the market change. Where is their other income coming from per instruction? Like others who’ve tried the low-cost model, they’ve discovered it just doesn’t pay.
We’re also heading into very turbulent times and I don’t believe there will be an estate agency in the country that won’t have to put up its fees because of the rise in the cost of living, combined with the challenges facing the housing market. Is Purplebricks a business that can adapt to a buyers’ market in a recession?
Purplebricks may have £42m in the bank but if it continues burning through cash at the same rate, it won’t be around in 18 months’ time. How can the city even think this business can survive?
The company has now said it wants to recruit its own mortgage consultants and be an appointed representative, which feels like a desperate roll of the dice.
As someone who started a financial services company from scratch when we took over the Woolwich Property Services estate agency (which became haart), we needed 189 mortgage consultants. It took three years and a £24m investment to get there.
If they think they’ll have sufficiently trained mortgage consultants by the end of the year, I’d say they are clutching at straws. Then they have to get the business in; do they have the right culture, drive and understanding of how to achieve the FS income they so desire? I don’t think they’ve proved that yet in their current model.
They’ve admitted their current sales and marketing initiatives haven’t worked, so they’re now going back to the table with a new ‘highly targeted’ campaign. What does that mean? What weren’t they doing previously in their well-trumpeted marketing? Is it just PR spin?
Purplebricks, you have been an annoying thorn in our sides, your model has now been found out. Please don’t make it a long, painful goodbye. Go now.
You’ve had your fun, be honest with your investors but, more importantly, your long-suffering staff.
I’ve no doubt the thorn is wilting – and will eventually shrivel up.
Paul Smith is chief executive officer of Spicerhaart.