The housing market transformation efforts by Purplebricks have failed

The troubled digital real estate agent, Purplebricks, has announced that it is up for sale due to a significant decline in its share price, dropping its value from a peak of £1bn to only £23m.

The company has reportedly received credible expressions of interest from potential buyers, but in a declining property market with intense competition, finding a suitable purchaser may be challenging.

Purplebricks is currently being advised by Zeus Capital and PwC and is hoping for an offer from its largest shareholder, Axel Springer, or its founder, Michael Bruce. However, no firm proposals have been put forward, and analysts predict that the best offer they could hope for is no more than £37m, equivalent to 12p a share.

The stock is presently trading at slightly over 10p, a sharp drop from its record high of almost £50. Even if the company is sold, the sale will result in significant losses for investors who purchased the company’s stock market listing with the promise that it would disrupt the traditional estate agent hierarchy.

The company’s recent setbacks can be attributed to declining sales and a series of expensive blunders, ultimately leading to the demise of its vision to revolutionize the property market.

According to Davy analyst David Reynolds, “It was a disruptive business, but its business model was overly ambitious.” The company’s premature expansion and failed international operation contributed to its downfall.

Founded in 2014 by brothers Michael and Kenny Bruce, Purplebricks aimed to transform the buying and selling of houses across the UK. Its key proposition was the elimination of commission costs, offering a flat fee of £1,000 upfront instead of taking a percentage fee based on the sale price.

After engaging Purplebricks as their selling agent, a representative visits the property to assess its value and upload relevant details onto the Purplebricks website. This platform facilitates connections between interested buyers and sellers, who can manage the viewing process and sales negotiations themselves. Alternatively, for a supplementary fee, Purplebricks can handle these tasks on the seller’s behalf.

The concept resonated well with investors, evident from the company’s £240m valuation on the London Stock Exchange within just 18 months of its launch. This value was roughly half that of Foxtons, a competing agency with a longstanding reputation.

Encouraged by the positive response, Michael Bruce, the co-founder who led the business to its public offering, decided to extend operations to Australia in 2016, followed by the United States and Canada. However, this expansion proved to be a costly blunder. Vic Darvey, the former CEO who succeeded Michael Bruce in 2019, revealed that shutting down the US business alone incurred costs of approximately £4m.

Overall, analysts at Davy estimated that the online agency incurred losses of around £194m due to its overseas investments. Michael Bruce resigned in 2019, following which the company experienced a consistent and substantial decline in market share, as per Reynolds.

In addition to squandering funds on its international ventures, the company also splurged on extravagant advertisements. These ads, which aired during prime-time television, were designed to make viewers feel foolish for paying a commission on a property.

The advertising campaigns of Purplebricks, which amounted to £25m, involved enlisting comedian Mo Gilligan and product placement on Coronation Street. However, according to Andy Shepherd, the CEO of estate agency Dexters, Purplebricks had wrongly assumed that the digital market was the future. This was not the case, as feedback revealed that they were not fulfilling their promised service.

Anthony Codling, a former analyst at Jefferies who covered Purplebricks, pointed out that Purplebricks only managed to sell about half of the houses they dealt with, which could be considered a risky move. Unlike traditional agents, Purplebricks’ staff were not incentivized in the same way, which could lead to a choice between helping a client sell their property or securing another construction project.

Last month, Helena Marston, the CEO of an unnamed business, announced that the company would be put up for sale, following two rounds of redundancies in the sales and lettings team to free up cash.

In December, the company’s revenue dropped by 16% to £34.5m, prompting them to announce the launch of a mortgage arm. Despite the declining business and share prices, Purplebricks claims that there are interested bidders, and the formal process began on Wednesday.

One potential buyer is Axel Springer, a German-based media group that already owns Aviv, a privately owned real estate tech business with a similar business model to Purplebricks, although Axel Springer declined to comment. Another possible buyer is Michael Bruce, the former CEO and founder of Boomin, an online portal that collapsed in October 2022. However, Michael Bruce did not respond to a request for comment.

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