Online estate agent Purplebricks today confirmed it is pulling out of the US, just two years after launch.
Revenue at the company grew 55 per cent over the year to £136.5m in the year ending 30 April. Loss before tax shot up to £56m, from £29.2m.
Gross profit, meanwhile, increased 61 per cent to £79.9m. The firm held £62.8m in cash at the end of the year, down by £59m.
UK revenue increased 22 per cent to £90.1m, while the Canadian business, which was acquired in July 2018, contributed £23.7m.
The company had an operating loss of £52.3m, from £27.8m the year before.
Why it’s interesting
Just two months after deciding to shut its Australian arm, Purplebricks today said it will withdraw from the US market.
The two businesses, it said today, helped drive its losses with a £52.9m operating loss in the countries. It expects withdrawing will significantly reduce the amount of cash it burns through.
“Without a proper grasp of the new markets they were entering, and a downturn in Australia’s domestic housing market, the entrepreneur’s dream has quickly turned into a nightmare,” said Julie Palmer, a partner at Begbies Traynor.
Purplebricks is winding down the Australian business with a smaller staff until it closes in December. Meanwhile the US brand, which launched in September 2017, will close some time this financial year.
Purplebricks said it was open to selling the business in the US. But would close it if no buyer could be found. It operates in seven states.
“While there remains a significant opportunity to disrupt the US market, it would take substantially more management time and resources than the company is able to commit at this time,” said chief executive Vic Darvey.
In its other North American market, Canada, Purplebricks showed a different story. Acquired in July last year, the business has “progressed in line with management expectations”.
The market contributed £23.7m revenues and £3.2m operating profits. In the UK it increased operating profit 241 per cent to £5.3m.
Shares rose 3.8 per cent today. However, analysts said a recent drop in share prices could lead to a takeover bid.
“The group’s overseas rapid expansion led to a poor ‘quality of execution’, and that played a role in the group’s underperformance. The plunge in Purplebricks share price has prompted Axel Springer to ramp up its stake in Purplebricks to 27%, and now there is speculation of a takeover bid,” said David Maddden at CMC Markets.
What Purplebricks said
“It’s been another year of strong revenue growth and we continue to build a highly relevant disruptive brand and defensible position in the market,” said chief executive Vic Darvey.
“With a base of clear brand leadership in both the UK and Canada and a differentiated, technology-led proposition driving business model advantages, we now have a clear plan to unlock the next wave of growth and extend our market leadership.
“We have taken the difficult decisions to exit our businesses in both Australia and the US as it is very important that we now focus our resources on the UK and Canada, where we have a strong established presence and where there are significant opportunities to grow market share and deliver profitable growth for shareholders. Both exits will be conducted in an orderly manner with the expectation they will be completed by the end of 2019.”