When I last looked at Purplebricks (LSE: PURP), what I saw was a company that was expanding very rapidly, pushing into new territories just about as fast as it could find them on a map, and burning masses of cash in the process. But not, as far as I could see, building any significant competitive advantage.
It has always looked like a classic bandwagon stock to me — the kind that gets its name well known, and investors pile in to what they see as a get-rich-quick opportunity. I’ve seen it time and time again over the years. I’ve seen them soar. I’ve seen them crash.
Investors had already turned away from Purplebricks, and the once-flying shares have now lost more than 75% of their peak value since July 2017.
U-turn
Then Wednesday we heard of a dramatic u-turn in Purplebricks’ strategy. Belatedly, the company has admitted what many of us have seen clearly for a long time — its headlong rush into new markets was too optimistic and too expensive.
“With hindsight, our rate of geographic expansion was too rapid and as a result the quality of execution has suffered,” and “we have also made sub-optimal decisions in allocating capital,” said the announcement. It was accompanied by a rare apology for a poor performance over the past 12 months.
In the landmark update, the company said it is pulling out of Australia after two-and-a-half years. And in the US, to use Purplebricks’ own words, the firm is examining “options for delivering the next phase of growth in a more effective and cost-efficient way including more closely considering the opportunities and risks associated with a materially scaled back US business.”
Boss gone
On top of that, founder and chief executive Michael Bruce is to step down, which is hardly surprising — his position was pretty much untenable after Tuesday’s soul-searching missive.
But, with the shares down more than 20% since the shock announcement, are they now attractively priced or are they still to be avoided?
Neil Woodford was an early backer, and that’s probably encouraged a lot of private investors. But Mr Woodford did invest in the early days, before the full horror of Purplebricks’ overspending on marketing and over-stretching on the expansion front became clear. And he has been selling off Purplebricks shares over the past few months.
Bottom line
Revenue is expected to come in between £130m and £140m for the year to April 30, and the firm estimates cash balances at 30 April of around £62m.
Prior to this week’s news, analysts were forecasting two further years of pre-tax losses adding up to around £70m. And even a very small pre-tax profit of £0.8m in 2021 would translate to a bottom line loss per share. So we don’t have a lot of metrics on which to value the company — and I can’t help feeling we’ll see forecast downgrades now.
I’ve never been able to see what’s supposed to be so special about Purplebricks. Online presence just isn’t a big barrier to entry these days, and underneath it all, it is just an estate agent. I’m maintaining at least a bargepole’s distance.