Not all enterprise disruptors prosper. Purplebricks (PURP) has tried to revolutionise the enterprise model of promoting houses. Its decision to sell over the net and keep away from all the overheads of running excessive-street property companies makes a variety of sense, as does its provide to clients of charging a fixed fee for selling their assets.
This is wherein the coolest bits of the tale stop. Purplebricks has achieved a lot to attract interest to the ridiculous percent of fee charges charged by means of traditional property dealers. Its fixed prices are generally plenty cheaper, however they’ve one large downside – the client has to pay them whether or not Purplebricks sells their domestic or no longer.
In a buoyant housing marketplace, this is not an problem as homes promote easily and relatively quick. When things get a chunk greater sluggish, as they may be doing now, its purchaser proposition starts to look decidedly negative price. This is specially proper while some ‘no-sale, no-charge’ dealers are reducing their expenses towards Purplebricks’ degree.
Estate agents fast exit of commercial enterprise if they’re now not selling houses. Yet looking forward to clients to pay up and watch their residence sit down unsold available on the market for months isn’t going to endear them to Purplebricks. Weak residence markets discover estate organizations out and I think that this will occur to Purplebricks in the UK inside the contemporary marketplace. In short, I don’t suppose its business model stacks up in a weak marketplace because it makes more sense for humans to go with a traditional agent.
This serious issue apart, Purplebricks has made existence very difficult for itself by way of seeking to set itself up in Australia and the USA before it had proved that its commercial enterprise version could make meaningful income in its home market. This is a classic case of looking to run before you can stroll. It has no longer worked out well.
This week, Purplebricks introduced that it turned into getting out of the Australian market and slicing back in the US. These corporations have been losing plenty of money and the company has successfully admitted that it can not see the day while income will arrive. The founder and chief executive of Purplebricks has left the organisation as a result.
The UK business is creating a small earnings while the one in Canada is operating at ruin-even. Whether those businesses can be profitable over an economic and housing marketplace cycle is by no means sure.
What I locate barely awesome is that at a percentage price of 124p, Purplebricks nonetheless has a market capitalisation of £376m. It has just over £60m of coins to absorb losses in the US and to satisfy the fee of remaining down the Australian business. Whether it’s going to have any cash left afterwards remains to be visible. But the valuation nevertheless looks very wealthy to me.
The concept of undercutting high-street sellers and working online is a great and commendable one. Charging expenses no matter whether or not a sale is made isn’t always, and that is why I assume this business will alas fail.