Online estate agent Purplebricks has announced that it will be exiting the Australian and US markets after financial results showed company losses have effectively doubled to £52 million this year, including a cash burn of £90 million.
Writing as part of the AIM-listed company’s 2019 financial results, Vic Darvey, group CEO at Purplebricks, commented: “We have taken the difficult decisions to exit our businesses in both Australia and the US as it is very important that we now focus our resources on the UK and Canada, where we have a strong established presence and where there are significant opportunities to grow market share and deliver profitable growth for shareholders. Both exits will be conducted in an orderly manner with the expectation they will be completed by the end of 2019.”
The company blamed a slowdown in the US housing market and the high cost of marketing on its failure to break the US market.
Its share price has slumped from an annual high of £1.89 to 93p at the time of writing.
Founded in 2012, Purplebricks is a UK startup success story that sought to shake up the British estate agency market with a primarily online service coupled with a set of local experts that offered a flat fee regardless of whether the property sells or not, which tends to come in lower than the fee charged by high street estate agencies like Foxtons, Haart or Connells.
Founder and ex-group CEO Michael Bruce also left the company back in May, when former MoneySupermarket managing director Darvey took over.
An ambitious international expansion and big marketing spend have bitten the company this year however, and investors like venture capital firm DN Capital and Neil Woodford might be starting to get tetchy. Woodford wrote down his investment in the company last month when his Woodford Investment Management group sold around £16 million of shares to lower its stake from 28.9 percent to 23.9 percent.
“Unfortunately for Purplebricks, today’s figures and the failure of their international escapades will have left them feeling a little blue. That’s if the colour hasn’t drained from them completely,” director of rival estate agency Benham and Reeves, Marc von Grundherr, commented on the results.
“While £52 million in losses is eye-watering enough, they’ve actually burnt £90 million which is a story all too familiar with the online model and one has to wonder when enough is enough. No wonder Neil Woodford and his investors have been having sleepless nights.”
Purplebricks did pull in growing revenue of £136.5 million, up 55 percent year-on-year, but its failed international expansion and some expensive marketing, including a nationwide TV advertising campaign, have ballooned losses to £90 million for the year.
“It’s been another year of strong revenue growth and we continue to build a highly relevant disruptive brand and defensible position in the market. With a base of clear brand leadership in both the UK and Canada and a differentiated, technology-led proposition driving business model advantages, we now have a clear plan to unlock the next wave of growth and extend our market leadership,” Darvey commented.
Purplebricks will now focus solely on its UK and Canada business. In the UK it has carved out a strong market position and made a £5.3 million operating profit on £90.1 million revenues in FY2019.
Speaking in a presentation of the results, Darvey said: “These decisions are important for two reasons: firstly moving forward they will significantly reduce our operational losses, but secondly and most importantly, they will allow us to focus on our flagship market of the UK and our mature business in Canada, where there are significant opportunities to extend our market leadership.”
“Rapid expansion into overseas markets has been incredibly distracting to our teams,” he added.
Even after its Australian and American sojourns, Purplebricks does still have £62 million of cash, with Darvey stating in his presentation that is is “important to point out that post-closures the business will become cash generative,” and that the company has “enough money to deliver our plan.”
This includes becoming a “real-time, mobile-enabled estate agent of the future,” moving towards more agile ways of working and laying the foundations to be a “data-enabled estate agent,” Darvey said.
Lastly, responding to a question from a Citi analyst after his presentation, Darvey said the Purplebricks upfront fee model might eventually be evolved using data, but that he doesn’t think a “no sale, no fee” model would work for the business. “For me I think we need to understand how we evolve our pricing,” he said.