Is Purplebricks’ stunning rise built on dodgy foundations?

Few could have predicted the impact that online estate agent Purplebricks has made in such a short space of time.

In just four years, it has gone from an unknown agent doing things a little bit differently to one of the sector’s slickest and most recognisable brands.

But as it targets huge expansion in the US and Australia, there are emerging signs that its meteoric rise is running out of steam.

The early hype around Purplebricks caught the imaginations of investors and its shares soared by more than 450pc between its December 2015 float and August last year. In 2017 alone they were up 170pc. But analysts are beginning to question whether there is any substance behind the glossy marketing and bold ambition.

A key concern is that it is pushing into overseas markets before the UK model is proven. Purplebricks’ shares are down more than 38pc from their peak, indicating investors are beginning to waver, too.

when Purplebricks launched, it painted itself as a fresh, online alternative to its stuffy, traditional rivals. Customers could search for properties and arrange viewings online rather than peering through the shop window of an agent on a run-down High Street.

But the most revolutionary aspect of its proposition was its fees: rather than pay commission of up to 3pc, sellers pay a flat fee of £849, or £1,199 in London – a saving of almost £7,000 on a £250,000 home.

Another difference, though, is that you only pay a traditional agent when your home sells; with Purplebricks, you pay either way.

The key measure is whether Purplebricks is any better at selling your home – and that’s exactly where analysts are beginning to probe.

In a radio interview in October 2016, chief executive Michael Bruce claimed it sold 88pc of the homes it took to market within ten months. But investment bank Jefferies believes this is wrong, having carried out its own study.

In a note to investors in February, Jefferies found that Purplebricks sold just 51.6pc of the homes on its site in November 2016 within ten months.

If true, that makes its ability to sell homes bog-standard.

The note knocked a fifth off the value of Purplebricks’ shares in just three days.

Purplebricks refuted Jefferies’ research. It argued that Jeffries did not account for properties that were in the process of being uploaded to the Land Registry, which can take months, and therefore sales data was incomplete.

However, Purplebricks refuses to reveal its actual sales figures, making it difficult to know how many homes it really sells.

And although it recently secured £150m of investment to grow in the US, actual figures on how well it is doing overseas are hard to find. Purplebricks’ own rhetoric is that growth has been twice as fast as it planned.

The one clue to how it is doing is revenue figures.

Sales are expected to rise from £46.7m last year to £93m this year – a 99pc rise.

To fund expansion, Purplebricks sold 11.5pc of its shares for £125m to German publisher Axel Springer, the owner of Bild and Die welt newspapers. Analysts at Peel Hunt say that the move will help push revenues up to £193.9m next year and £311m the year after.

But others have queried whether the time is right for a US expansion when question marks hang over its ability to flog properties here and in Australia.

Sales figures for its American enterprise – which began in four districts in California – remain as much of a mystery as its UK division.

One thing is clear. The US homes market differs dramatically to the UK in that Americans typically strike up personal relationships with their realtors, who also hold open days to encourage buyers to see homes.

The advice from investment experts is that Purplebricks is a long-term bet – but only for those with a stomach for sharp rises and falls along the way.

Anthony Codling, of Jefferies, said: ‘Our concern is that the group has expanded quickly across three continents before the model has been proven, and therefore the shares are priced for perfection.’

Russ Mould, of broker AJ Bell, said: ‘Purplebricks is probably best suited to patient, longterm but risk-tolerant investors who believe in the potential of the company to disrupt the estate agency market, not just in the UK but over the pond and Down Under as well.

‘Anyone who has their doubts or prefers something where the story is a little less “jam tomorrow” may not be quite so bullish on the shares.’

A spokesman for Purplebricks said it was the only listed estate agent offering substantial sales growth, and pointed to upbeat analyst consensus and company guidance taken from Bloomberg that estimated 100pc revenue growth for 2018.

They added: ‘This is compared to consensus for the likes of [rivals estate agents] Countrywide, Foxtons and LSL, where revenue is flat or falling. Purplebricks has around 76pc of the online market share and, while marginally impacted in the first quarter by the Beast from the east and market softness as a whole, has reported that it is realising record instruction rates.’