Purplebricks faces a ‘more challenging’ market as instructions fall sharply

Following an exceptionally strong period for the UK housing market in FY2021, buoyed by the stamp duty holiday, Purplebricks reports that the six-month period to 31 October 2021 has been more challenging.

Purplebricks has just release a trading update for the six months ended 31 October 2021. It reveals that new instructions have slowed significantly in recent months, given continued strong demand across the housing market is not being met by sufficient supply of instructions. This imbalance has resulted in new instructions coming to market being approximately 23%1 below the comparative period last year.

The Group says that it has driven considerable transformation during the first half of the year and has significantly invested in and transformed its business model in this period, introducing new pricing and a simplified proposition alongside a new operating model.

The online estate agency says that it is pleased with the ‘progress’ they have made transitioning its sales team to a fully employed model, which will offer their agents greater security and benefits and will enable the company to scale up quickly when market conditions improve.

Purplebricks says that it now has over 95% of its new sales team in position and are starting to see encouraging progress across both conversion rates and ancillary attachment rates. They also report to be pleased with the progress they have made in enhancing their digital capabilities as they ‘continue to transform the buying and selling experience for consumers’.

Given the supply and demand imbalance in the market and the disruption caused by the business transformation, the company expects to report a reduction in instructions for the six-month period to c. 22,000 (H1 2021: 35,387).

The firm’s cash position has also weakened. As at 31 October 2021 was approximately £58m, down from £75.8m on 31 October 2020, which reflects a period of significant investment in digital, non-recurring costs incurred in managing the business through the pandemic and one-off exceptional costs in transitioning to a fully-employed model. The company expects the cash position to stabilise in the second half of the year.

Outlook

Going forward, uncertainty remains regarding the imbalance of supply and demand in the housing market and given the disruption caused by the business transformation, they expect this dynamic to continue into the second half of the financial year, impacting new instructions for the full year. The cost guidance provided with the Group’s update on 10 August 2021 remains unchanged, and therefore adjusted EBITDA is expected to be below previous guidance.

However, they are confident that their transformed business model will partially mitigate the impact of market conditions on instruction levels.

‘This transformation is yielding positive results in terms of growth in ARPI and we are starting to see progress in our market share aspirations and are well-positioned to grow following the completion of our transition to a fully employed model in the second half,’ according to the update.

The Company’s medium-term guidance remains unchanged, and the Board continues to expect Purplebricks to be able to deliver annual revenue growth in excess of 20% in the medium-term, with confidence in the Group’s ability to deliver against its growth strategy.

Vic Darvey, CEO, commented: “Following a stronger period for instructions last year, supply in the market has fallen as we slowly adjust to a below normal level of activity following a period of successive lockdowns and the end of the stamp duty holiday. Our service proposition remains strong and compelling, with properties selling quickly, but the reduced amount of stock coming to the market is proving challenging.

“Against this more challenging backdrop, the team is continuing to execute on our transition to the new operating model. We are encouraged by the early results we are seeing on the ground and whilst they are not yet reflected in the overall group performance, we are confident in the strategy and that we have developed a strong platform for growth as activity levels pick-up. We are committed to our mission of achieving 10% market share by being the go-to-place to buy, sell or let your home.”

 

The Stock Market clearly did not find the update reassuring as this morning Purplebricks’ shares crashed 30% in value.

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23 Comments

  1. Diogenes

    Just what they need with so many more mouths to feed.

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  2. PaulC

    Winter is coming!

    With corporates overvaluing more than at any time in my experience.

    Agents desperate for stock lowering fees to loss leading levels.

    Mortgages valuers struggling to evidence transaction values largely due to slow logging of sales with land registry.

    The pressure will be on all agents in the next 6-12 months.

     

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  3. dantheman78

    Shares down this morning 27% to 0.38 pence, bit of a busted flush

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    1. Woodentop

      Oh dear where is our friend Sadlat and the Duck now.

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  4. PeeBee

    “This imbalance has resulted in new instructions coming to market being approximately 23%1 below the comparative period last year.”

    Interesting statistic – huge pity for them that their own results don’t come anywhere near that…

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  5. If Carlsberg made Estate Agents…

    This should come as no surprise to anyone at Head office. Vic has surrounded himself with ‘yes’ men and women. He has absolutely no understanding of Estate Agency and yet, of course he’s ‘very committed’. Given the speed with which people are still leaving, due to the micro managed environment they now have to endure, it will not be long before Pb are looking towards Germany for another cash injection. If I was Axel, Jupiter, JNE or anyone else whose invested, get out now!

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  6. PeeBee

    “The pressure will be on all agents in the next 6-12 months.”
     
    Paul C – in my 26 years in Agency – 42 in the industry total – “the pressure” you refer to has been on Agents far more than off them.  Two or three good years at a tine followed by droughts lasting six to ten-plus – with fair weather players who couldn’t last the long race dipping in and out of the market every time trying to mop up some of the good gravy.
     
    Some might last through one of those turbulent cycles and into a second – but the “Agents” that have survived more than two of those cycles have done so because they possess something that ‘bricks lack – leaders who know the score.  Battle-hardened professionals at the top who understand the market and what makes it tick.  Purplebricks have none of that.
     
    This is where EVERYONE will see the Emperor’s winky (credit: Robert May)

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    1. Woodentop

      I couldn’t agree more.

       

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    2. Certus

      Completely agree. My 35 years has seen the cream of the high street rise during tough times when quality wins. 38p per share is less than countrywide when they got bought out but I doubt there will be takers for Purplepricks.

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    3. Robert_May

      For clarity, all I ever did was express opinions based on numbers I could see and my experience of agency.   I was not being malicious or vindictive.

      I  called this right in 2013 before Purplebricks was formed.

      Strike are providing the challenge to Purplebricks, they won the race to the bottom so Purplebricks either have to focus on that challenge or continue with disruption. they cannot do both.

       

       

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  7. Woodentop

    Is this the end in sight for PB?

     

    They only survived because of the media advertising which was never sustainable for many reasons. That is now drying up by action and lack of new gullible investors, they have wised up.

     

    High street presence has always been key and why agents have survived for decades if they have their heads screwed on tight and not run around like lemmings … here today when the goings good and soon disappear when it’s tough. It’s always tough, even in the good times when it can become very messy.

     

    The High Street has continued to command 95% of the market. Out of sight in the bedroom and reliant on the web is NOT what the public want and proven beyond any doubt, so don’t get fooled by these Tech’s who say they have the Midas touch. Tech is only a tool to your professionalism.

     

    Just take a look at the stock in your area, who always demands the top of the table? Well established and hard working agents!

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  8. Certus

    Sounds like a good time for ROPA . Licensing has to be key

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    1. jan - byers

      Licensee will nit  stop business charging low fees or going bust

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      1. PeeBee

        Absolutely correct, jan – buyers.

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  9. The No.1 Hybrid Agent Book

    “You’re listening to Purplebricks MF where we talk strictly house and mis-manage, Doris in Brighton has been on asking can they sell my 2 bed, don’t know but there’s a money back guarantee that makes no sense when 95% of agents don’t take any money to start with anyway… “

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    1. PeeBee

      Fascinating how someone that pitched their business for them for over six years suddenly finds so many things to pull them apart for…

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      1. The No.1 Hybrid Agent Book

        PB was an excellent model that created a very successful local business for myself and many of my colleagues, that was changed by PB and we are now seeing the effects of this. Selling clients had great personal service for years from those of us that used the software as it was intended and built these small businesses by recommendation. The individual lessons gained have paved the way for these businesses to continue to serve their local clients with software from the likes of EXP, KW, Agency UK etc. PB was the rocket boosters for the ‘work from home local hybrid agent’ offering a personal local estate agency service, the boosters are now falling away.

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        1. PeeBee

          “PB was an excellent model that created a very successful local business for myself and many of my colleagues…”
           
          Those would be the same colleagues that are now queueing up in their droves to jump on the “badly done-to” compo bandwagon, I take it?
           
          You couldn’t make it up.  Oh, wait…

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          1. The No.1 Hybrid Agent Book

            Different issue, the original PB model worked well for agent and client, the forthcoming case has probably arisen because as individual PB workers we bought in initially to the ‘Build your own saleable/ scalable business’ promise which came to nothing at the end, we worked as hard and as long as you do with your own business, but PB and its middle management ran us like employees with spreadsheet figures, sales meetings and one to one reviews. That’s what has started the ‘badly done to’ uprising we are now seeing.

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  10. AcornsRNuts

    They started as in the pinkbricks, now going to become in the redbricks.

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  11. PeeBee

    “We are committed to our mission of achieving 10% market share by being the go-to-place to buy, sell or let your home.”

    OKAY… here’s some figures to chew on in that respect.

    Rightmove have a total of 676,718 properties listed as For Sale (including Under Offer/SSTCs)

    Purplebricks have a total of 27862 properties listed as For Sale (including Under Offer/SSTCs) – their own website data.

    SO… they currently have 4.12% of the Rightmove total.  But RM claim to display “circa 95% of the UK market”, so it is reasonable to round the total of UK listings up to 710,000 as a more realistic number for PB to seek to achieve 10% market share.  That puts their share at 3.92%.

    They’ve got a loooooooooong way to go…

    …but they are “committed”.  That’ll be all right, then. (insert incredulous expression emoji here)

     

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  12. Countrybumpkin

    Commisery…

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    1. PeeBee

      #CONmisery, remember…?

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