The online estate agent – sorry, ‘hybrid’ estate agent – shocked the market this morning (Tuesday) when it announced chief executive and founder Michael Bruce had resigned.
Purplebricks has helped to re-shape the industry, but Bruce and his team have overseen a woeful performance over the past 18 months, during which time the stock has last almost three-quarters of its value.
Investors have pulled out for a number of reasons, but most of them have been left disappointed by the botched move into Australia and the US, while Brexit has certainly weighed on the core UK business.
Bruce described launching in the US as the “single biggest moment” in the company’s history, but less than two years on, it may well be considered the single biggest regret. The launch in Australia certainly should be.
The plan was that Purplebricks would expand seamlessly into new territories, which would help to bring in more money and boost the bottom line, taking a small disruptor to the top of the international game.
Difficult market conditions
Things haven’t quite panned out like that, though. Now the company is closing down its Australian business altogether, while the US arm looks set to be massively scaled back.
As Markets.com analyst Neil Wilson explains: “The UK housing market has softened, prices are falling in Australia and cracking the US is proving very difficult.”
AJ Bell’s investment director Russ Mould added that the decision to pull out of Oz and scale back in the States is “catastrophic for Purplebricks’ reputation”.
“These two regions were the main engines of its overseas growth plan and today’s announcement is effectively an admission of failure,” he said.
Almost all of the City’s chin scratchers agree that Purplebricks got ahead of itself, looking for rapid expansion when it had yet to fully prove up its model in the UK.
The company had its fans over on this side of the pond, mainly home sellers who liked the idea of a low, upfront fee rather than the commission taken by traditional agents.
Yet to really establish itself in UK
But others had big issues with it: some analysts questioned how bosses recorded sales, while others claim selling houses is a people’s business, which Purplebricks effectively removed.
Either way, Purplebricks was still in its relative infancy in the UK when it announced plans to move abroad, and experts think it would have done better to bide its time for a little longer.
Life on the high street yet? #Purplebricks CEO/founder stepping down with immediate effect. Is this the clearest sign yet that passive intermediaries are not the best thing since sliced bread? Property is primarily a people business not a #proptech one— Anthony Codling (@anthonycodling) May 7, 2019
After all, the list of estate agents that have a big share of the market in multiple territories must be a pretty short one – even among those that have been around for decades.
“Purplebricks tried to run before they could walk and are paying the price for being just a little bit too ambitious,” said Markets.com’s Wilson.
Mould agreed: “Ultimately Purplebricks has been trying to do too much too fast. It would be better served by fine-tuning the UK operations and slowly expanding overseas one step at a time.”
Purplebricks not alone
Purplebricks isn’t the only company to have these kind of criticisms levelled at it, with the lure of overseas markets catching out some of the biggest UK PLCs.
But it was also forced to beat a hasty retreat just a few years later, selling off its flagship Paris store and its US brand, Brooks Brothers.
Just before that, Next PLC (LON:NXT) had opened three trial stores in the US, including one in Boston. According to reports, it lost a “handful” of millions of pounds on the venture before pulling out.
More recently, taxi app Hailo was also forced to call time on its US adventure back in 2014 after finding the competition from the likes of Uber and Lyft a little too much to handle.