Should we all follow the purple brick road?
Looking at today's performance of Purplebricks one might think that only good things can happen if one chooses to get on the purple brick road and instruct Purplebricks to sell your home. However, whatever colour the road there are inherent risks for all who travel. In the Wizard of Oz some of the yellow brick road had fallen into disrepair and there were dangerous cliffs with deadly drops. In terms of Purplebricks it is wise for the seller to be aware of the dangers along the purple brick road
Does Purplebricks share price rise mean that all is well?
Yes, currently, for shareholders
All is certainly well for the shareholders of Purplebricks, the company has had a good pandemic. The housing market has been strong and its revenues instructions and profits have gone up.
But perhaps not for all potential customers
Purplebricks potential customers may, however, want to dig a little deeper. When Purplebricks was first listed it used to disclose its conversion ratios from instruction to sale agreed (Sale agreed does not mean legally sold or that the buyer and seller are legally obliged to complete the transactions).
One of the flip sides of higher fees Average Revenue Per Instruction (ARPI) and higher profits is that Purplebricks is doing less for more. This is magic that would impress the yellowbrick road's own wizard.
Purplebricks doing less work for higher fees
So how does Purplebricks do less work for higher profits? It has cut its marketing spend by 27% in the half-year from £12.3m to £9.0m, which equates to around £93 per customer instruction in the period. Purplebricks is spending almost £100 less marketing every home for every customer. It is spending less doing what most customers will believe they are paying Purplebricks to do.
Meanwhile, the ARPI has increased by £39. Nice work for shareholders not so nice for customers.
These movements in income and spending would be irrelevant if it was clear that Purplebricks was getting the job done. All we need is the answer to one simple question. How many homes have you sold?
Purplebricks has never wanted to answer this question and as time has passed and as profits have risen it has disclosed less and less. When first a listed company Purplebricks disclosed its sale agreed conversion ratios.
The conversion ratios were as follows:
Since 2019 Purplebrticks has not disclosed the 'sale agreed' conversion ratios.
In the latest results, Purplebricks merely refers to a market share statistic from a third-party source (TwentyCi).
We would prefer that Purplebricks disclosed how many homes it actually and legally sold. It must know this figure because the legal completion of a home sale is one of their triggers for payment of the £999 or £1,499 instruction fee for those customers choosing the pay later option - where payment is deferred to the earliest of 10 months from instruction, the legal completion of the sale, the customer instructing Purplebricks to withdraw their home for sale from the Purplebricks platform.
If the purple brick road truly leads to the emerald city why would it not signpost its successes and achievements on the way? It will have these figures to hand and if we are to be led by the science and statistics surely now is the time to show and tell.
A fuller discussion on the pros and cons of using Purplebricks can be found in our article Should I use Purplebricks? Spoiler alert: we do encourage some to use Purplebricks, but not all.