Purplebricks: Building Across The Pond

 

Posted on Feb 23, 2017

Where we are now in a place for the UK housing market where we have been ever since interest rates were slashed in the wake of the Global Financial Crisis in 2009.

This consists of  cheap money, an acute shortage of housing stock, and a very well bid property market. Of course, since the crisis in 2008 we have not only seen sharp house price inflation, we have also witnessed a transformation in the online space, with websites being added to by apps and smartphones.

These developments have helped existing businesses of almost all varieties. But in an already booming space the internet has power charged the cyber businesses of estate agents, with those who only exist online avoiding the extra cost of being on the High Street at a time of scandalously high business rates.

Indeed, the sector is so buoyant it would appear that there has been and still is, plenty of room for all contenders. This state of affairs may not last forever, and consolidation could beckon, but in the meantime it could very well be the case that even relate latecomers such as Purplebricks could given the likes of Zoopla or Rightmove a run for their money.

 

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 All About The Platform

Clearly, for any online player in any sector, as far as success is concerned the clue is in the platform. It is always likely to be the technology being any given platform which provides the edge over the competition. This is especially the case for those who do not have first mover advantage. Second to this is the aptitude of the management, its motivation and as much as anything, its hunger.

All of this is playing its part at Purplebricks for the company to hit the number three spot in the country, and have a whopping 62% share of new online instructions less than three years after being set up.

 

A Trusted Brand

The implication is that the brand, and trust of the brand have been developed to such an extent there is now a momentum behind it. 

That this is the case will be key over the near term in the wake of the group’s announcement it is to make a move to the United States. While U.S. expansion is not historically the best move for UK companies, something which, even Tesco has found out, it may very well be that for Purplebricks it can win where others have struggled.

 

Leapfrog Across The Pond

Certainly, in the UK it has managed to leapfrog what may have been regarded as daunting competition, so perhaps it may be able to achieve the same trick across the Pond. Certainly, the £50m it has raised at 220p versus a share price of 264p just after the news suggests not only does it have a decent chunk of money to go forward, but also that the stock market has given it the thumbs up.

Typically, a placing which added more stock to the register will cause the share price of a company to fall, not rise. The fact that we have seen the shares soar implies that the mooted plan to roll out a U.S. offering State by State is regarded as being pragmatic, and more likely to win that attempting to go for the whole country in one bite.

What will be interesting to see over the next year is firstly whether the U.S. invasion succeeds, and second whether the move will mean that Purplebricks can catapult itself above Rightmove and Zoopla?

Currently, at around £600m the market cap of the relative upstart is a third of that of Zoopla, and way behind Rightmove at £4bn. However, with the pace of growth we are seeing currently at Purplebricks, one would not want to rule anything out.

BY ZAK MIR Senior Journalist Why Media, Mayfair, London W1S 2AT