The Real Deal New York

It looks really bad for Purplebricks right now

The discount brokerage is struggling with housing slowdowns
February 21, 2019 09:30AM

Purplebricks CEO Eric Eckardt (Credit: iStock)

All is not well for rapidly expanding discount brokerage Purplebricks. The company’s shares fell the most on record after the brokerage lowered its outlook for the second time since early December.

The company slashed sales guidance for the year by 20 percent — as it expands in the U.S. and Australia, where the housing markets have slowed. Its chief executives in the U.S. and U.K. are also leaving the firm, Bloomberg reported.

Shares fell as much as 39.4 percent, the most since Purplebricks started trading in December 2015. The drop in investor sentiment comes as Purplebricks is facing headwinds across its markets. In the U.S., its marketing push hasn’t yielded expected sales, while Brexit negotiations in the U.K. have decreased home sales.

The company expects to bring in revenue of 130 million pounds to 140 million pounds this year, or $170 million to $183 million. That’s down from an initial estimate of as much as 185 million pounds, or $242 million.

“Given the tough trading backdrop in its key regions and the recent changes to customer propositions in the U.S. and Australia, revenue visibility is low and the near term growth outlook has weakened,” Peel Hunt analysts wrote in a note.

Last month, the discount brokerage said it would take a more traditional approach in the U.S. The company is changing its business model to offer sellers varying listing fees, which are only charged if and when a home is sold. The modified approach, aligns the Purplebricks more with traditional business models, in which agents are paid when a deal closes.

Purplebricks entered the U.S. market in 2018, with the flat-rate listing fee of $3,200 — later increased to $3,600. Now, consumers can search on the website to see what the fee is in their ZIP code. Fees have ranged from $4,950 in Las Vegas to $5,950 in Queens and $8,950 in Manhattan.

The pivot came as real estate companies’ shares have struggled. Last year, Purplebricks and fellow discount brokerage Redfin took a hit thanks to the broader housing market. Purplebricks’ entrance to the U.S. was pricey: The company’s expenses for the first eight months in the U.S. were more than double that of the first eight months in Australia. [Bloomberg] — Meenal Vamburkar