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Purplebricks shares rocket to over 300p – racing up 10% in just 30 minutes

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Purplebricks shares yesterday rocketed to an amazing new high – and this morning, continued their meteoric ascent.

Yesterday’s rise took place mainly in the space of the last half an hour of trading on the stock exchange, finishing the day at just over 300p, and at one stage hitting 310p. Altogether, by the end of the day, the share price had gone up some 24p, or around 10% in that barn-storming finish. This morning, in early trading, the shares shot up to over 340p.

Yesterday’s finishing share price – now over three times what they were at launch in December 2015 – gives Purplebricks a valuation of £641m. The firm has so far posted only one profit of £300,000 based on ‘adjusted’ EBITDA, although the Telegraph said that this was in fact a pre-tax loss of £2.8m.

By comparison to yesterday’s valuation of Purplebricks at £641m, Countrywide has a market value of £412m, Foxtons £270m and LSL £208m. It means that Purplebricks is worth more than Countrywide and LSL combined.

Meanwhile, investment website the Naked Fund Manager has drawn attention to “the size of the task” facing Purplebricks’ online competitors.

The blog includes a chart showing website visits per month running at around 750,000 for Purplebricks.

By comparison, housesimple receives 208,000 visits, emoov 104,000, YOPA 88,000 and hatched 21,000. (All the figures are from similarweb.)

The Naked Fund Manager says that Purplebricks’ marketing spend last year was £13m, and that for any of its competitors to “make any inroads into market share they will need to spend at least this much”.

The Naked Fund Manager does speculate that one source of competition to Purplebricks that could arise is from Rightmove and Zoopla – but points out that were they to move into competition with established estate agents, they would risk their market share, with agents deserting their respective portals.

The blog goes on: “The counter to this is that the balance of power has shifted and is in the hands of the online platforms. It is now critical for an estate agent to be present on Rightmove if they are to be effective for their customers.”

Of Purplebricks’ expansion into the US market, the Naked Fund Manager expresses significant doubts.

It describes the market as highly fragmented. Furthermore the commission is split between the listing brokerage and the brokerage that represents the buyer: each typically takes 50%, but then the brokerage has to split further with their agents, and so the commission is often split four ways. A senior agent could get 90% of that 50% split commission.

The blog believes that Purplebricks will not be competing on price when it moves into the States, and says the reason is that “it will struggle to attract talent if it reduces the commission attainable by good agents”.

There is also an interesting observation about local knowledge, both in the UK and the States.

“The argument that the local knowledge held by the local realtor leads to an optimised sale price, justifying higher commission rates, appears to hold sway at the moment.

“This argument has been steadily eroded in the UK over the years as platforms like Rightmove, and now Purplebricks, have, in my view, started to commoditise estate agents and challenge the status quo.

“While the preponderance of individual realtors represents an opportunity, it also implies a cultural preference for the personal touch. As detailed in the stats, there is a high number of buyers and sellers that rely primarily on word of mouth. This preference may lead to a slower take-up in the US compared to the UK.”

http://www.proactiveinvestors.co.uk/columns/the-naked-fund-manager/27180/purplebricks-us-expansion-how-big-is-the-opportunity

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Source:: Purplebricks shares rocket to over 300p – racing up 10% in just 30 minutes