How Purplebricks is leading the charge when it comes to disrupting Australian market

The property market is slowing, Purplebricks and other ‘disrupters’ are putting pressure on fees, and a big agent listed on the stock market has seen its value plummet over 75% in the last two years.

Meanwhile, the publicity seems to be going all the disrupters’ way.

No, this isn’t the UK but Australia.

The scenario, however, may ring a few bells – particularly as UK shares website Motley Fool carries criticism and the analyst rates the stock a ‘sell’.

Newspapers the world over love nothing more than a case study, so step forward Aussie couple Lyn and Brian Boyd who sold their home with the help of DIY website forsalebyowner.com.au

They say they saved loads of money, that the sale itself was a piece of cake, and they will probably never use an estate agent again.

Most Australians do still use traditional estate agents to sell their home, paying between 1.5% and 2%.

However, says the Financial Review, most Australians would also like to save money: “This desire has aided the growth of a wave of digital disrupters, led by London giant Purplebricks, which launched its fixed-fee, high-tech offering in Australia just over a year ago and claims to be growing ahead of expectations.

“To date Purplebricks Australia has sold over $1.1bn of real estate – about 2,200 homes – charging an average price of $5282, and has recruited 105 real estate agents. Customers can track their campaigns online and don’t have to fork out thousands of dollars in advertising.”

Purplebricks is apparently not the only one making waves, however: OpenAgent supplies leads and takes 20% of an agent’s commission if a sale follows, while NextAddress connects buyers and sellers direct.

Australian agents last year saw a decline in the total amount of commission fees earned – for the first time in five years.

Australia’s only stock market listed agent is McGrath: it is the third biggest, and since going public, its shares have lost 75% of value.

By contrast, London-listed Purplebricks is now worth about £1bn – far more than that of Countrywide or Foxtons, both of which have seen millions wiped off their value – and is now the biggest UK agency by listings.

Melbourne buyers’ agent David Morrell believes the writing is on the wall for many Australian estate agents because vendors don’t believe they get value for money from their services.

“Many of the old dinosaurs in the industry are not prepared for [disruption] or have no idea how to deal with it,” he said.

Meanwhile, in the UK, G A Chester on shares website Motley Fool has criticised Purplebricks for not revealing its actual sales.

Chester says: “Purplebricks never tells us how many properties it actually sold in any period. Previously, various figures it gave made it possible to at least estimate the number. My calculations of the average sale price suggested that either the company was cornering the market in trailer park homes sales or that a rather large proportion of instructions weren’t being converted to completions.

“Obviously, if you’re charging a fixed fee but fail to complete the sale in too many cases, you’re not going to have a sustainable business in the longer term.

“In its latest results, Purplebricks omitted two numbers it had routinely published previously that enabled the aforementioned estimate of average sale price. Conversion from instruction to sale agreed (which had been climbing and reached 83% in the last full year) was entirely absent from the recent H1 results. As was a corresponding figure for the full-year: “Sale agreed in the UK every 9 minutes 24/7.

“Sustainability and valuation

“In addition to the omitted information in the latest results, the table below — based on numbers Purplebricks does give — adds to my concern about the sustainability of its business model.

  H1 2015/16 H2 2015/16 H1 2016/17 H2 2016/17 H1 2017/18 H2 2017/18*
UK revenue (£m) 7.2 11.4 18.3 24.9 39.9 44.1
Revenue growth (H1-H1 and H2-H2) 800% 338% 154% 118% 118% 77%
UK marketing spend (£m) (6.6) (6.3) (6.6) (7.8) (10.1) ?
UK marketing spend increase (H1-H1 and H2-H2) 0% 24% 53% ?

* Based on FY guidance of £84m in H1 results

“As you can see, the company is having to increase marketing spend quite dramatically, while revenue growth is decelerating, also quite dramatically. For me, this trend appears ominous for the market’s future top- and bottom-line growth expectations, with the shares trading at over six times forecast revenue and 160 times forecast earnings for the company’s 2018/19 financial year.

“Due to the eye-watering valuation, my doubts about the long-term sustainability of the business model  . . . I rate the stock a ‘sell.”

http://www.afr.com/real-estate/residential/the-purplebricks-effect-disruption-makes-life-tough-for-estate-agents-20171213-h04dlw

Purplebricks Group plc isn’t the only ‘game-changer’ stock I’d sell today

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4 Comments

  1. MrLister

    Don’t worry, It’s only 8.25am. Still plenty of time for all the PB bashers to come up with some post festive drivel.

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    1. PeeBee

      Post festive drivel delivered below as requested, MrLister / PJ.

      Please don’t choke on it.

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  2. MagneticBullet35

    Er, the conversion to sale agreed % is on page 4 of Purplebricks results presentation available on its website. It’s given as “over 78%”.

    And surely as long as the % growth in revenues is more than the % growth in marketing spend then the cost per instruction is coming down isn’t it? I would say that’s good for PB.

    Not sure I’d trust this tipster with my money. I’m no fan of Purplebricks but I’m seeing more of their boards in my area and only a few others have had to take over because they didn’t sell. We have to hand it to them, there’s something the public likes about them.

    And the same presentation shows that PB was profitable in the UK too so it’s not all about burning investor money to offer low fees. We’re looking to up our game in a different way. The responses of all our competitors haven’t worked so far so it’s time to try something different. Spring is near so lets see how it pans out.

     

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    1. PeeBee

      MagneticBullet35

      You are correct in where to find the most recent claim for PBs instruction to ‘sale agreed’ conversion.

      78% ‘conversion’  of the listings to ‘sales agreed’.

      Let’s just forget for a wee bit that this is down 5% on the last statistic released to the City – and down TEN percent on the now famous Moneybox interview of October 2015 during which, in response to the interviewer’s question

      “So what is the percentage? I’ve seen estimates that it’s only one in seven or one in three that sell.”

      Group CEO Mr Michael Bruce stated:

      “..eighty-eight percent of people err… errr… sell their house prior to the period of deferment which is ten months…”

      When further questioned, he then went on to clarify

      Well – that… what I said was eighty eight percent of people actually sell their house prior to the ten month period – what I DIDN’T say was that twelve percent DON’T sell – all those people will remain on the market and stay on the market until they sell their house.”

      Now when I went to school, if you added 88% (that ‘sell’ within 10 months) plus 12% (that sell at a later point) – that would come to a total of ONE HUNDRED PERCENT.

      So – on that basis, their current effectiveness of doing what people have paid up-front for seems to have somehow slipped… by around a fifth, in a period of two years.

      Erm… does OOPS! cover that?

      But as I say – putting that little factoid to one side for a minute or three…

      …there is more meat on the bone to gnaw at in that report you’ve highlighted.  A LOT more meat.

      32112 listings in H1.

      Income £1138 per listing in H1.  That’s £36.55 million, give or take a few grand.

      Yet Revenue – up 118% on previous year – is stated as £39.9m.  It would be interesting to now where the other £3.35million came from.

      SO… using the figures above – they managed somewhere between 25,047 and 25368 “sales agreed” in H1 (>78% of 32112).

      And using THOSE figures, and combining them with the financial value of “Sold and completed” properties in the H1 period (£4.62Bn) plus the differential between the “SSTC pipeline” end H2 2107 and end H1 2018 (£0.06Bn), the average sale agreed/completed price would appear to have been somewhere between £184484 and £186848 – which is 60.55% or 61.33% of the value of their average listing price on 31/10/17, which was £304645.

      Erm… OOPS! again?  Henry Pryor might even want to brave the dangers of swimming in a bacteria-rich pond to comment on that statistic.

      Or maybe he won’t.

      In terms of another of their favourite braglets – “Sale agreed every ‘x’ minutes” that seems to have dropped off the results presentation – but IS present on the Group website and is currently displayed as

      Sale Agreed Every 9 Minutes

      which, for H1 (184 days), would equate to 29437 sales agreed.

      Erm… in the words of the late, great Frankie Howerd it seems to be a case of

      Thrice OOPS!

      Funny things – statistics…

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