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What now for Purplebricks?

A warning from Purplebricks about lower revenue and slowing growth hit the shares hard, and no turnaround in performance is yet in sight.

The meteoric rise of Purplebricks seems to have come to a juddering halt. Investors have been running away from a firm that recently announced its expansion plans in the US had come unstuck, and that it would miss revenue targets for the year. The firm said that it expected revenue for the 2018-2019 financial year would be £130 million-£140 million, from a previous forecast of £165 million-£175 million.

The firm’s appeal lay in shaking up the traditional estate agent market. In 2015, ‘shaking things up’ was a key appeal of many businesses. Purplebricks promised to streamline the process and do so at a lower cost.

The group has not been immune from the wider problems afflicting the UK housing market. Brexit fears and a lack of foreign buyers have hit activity, causing price growth to slow. Purplebricks is not the only estate agent to suffer, with Foxtons and Countrywide both feeling the pinch as well. But for a business like Purplebricks, which trades at around three times book value, a downturn in growth is particularly painful.

Recent data from the National Association of Estate Agents suggests that there are far more buyers and sellers, but that the average branch sold only five properties in December, down from seven in November. This is not a promising outlook.

Purplebricks has to keep spending on marketing to maintain its online presence and keep up the pressure on traditional estate agents, but this means that losses for the year are expected to widen, and with the Australian and US businesses still not gaining sufficient traction the group is unlikely to see much of an improvement from overseas either.

The outlook for the shares is not great either. The warning in February prompted a drop of almost 30%, with the shares down almost 40% at their worst point in the session. While the price has rebounded modestly, the direction of travel is still lower, with lower highs and lower lows clearly in evidence. A move above 195p is needed to put even a modest dent in the downtrend.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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