Purplebricks’ stock climbed after the online estate agent said it was pulling out of the U.S., marking an end to a 75% slump in valuation since it ventured across the Atlantic in September 2017.
Shares in the U.K. company that charges homeowners a fixed fee, whether or not a property is sold, have plummeted amid a deteriorating market at home and as expansion abroad deepened losses. The news comes on the heels of the company’s Australia exodus in May.
The stock gained as much as 5% as analysts welcomed the decision to focus on the more-established U.K. and Canada regions. “We see group profitability in the short term as now likely, a significant divergence from expectations six months ago,” Citigroup Inc. analysts led by Kyle Twomey said in note.
Purplebricks said a “significant opportunity to disrupt the U.S. market,” remains, but it would take “substantially more management time and resources than the company is able to commit at this time.” The Solihull, England-based company reported a full-year operating loss in the country of 34.1 million pounds ($42.9 million), wider than the 16.8-million pound loss a year earlier.
Flat-Fee Model Brought to U.S.
After building a successful business in the United Kingdom with its flat-fee real estate model, Purplebricks set its sights on finding similar success in the United States, but now, less than two years later, Purplebricks’ U.S. dream is dead.
According to the company, it expanded “too quickly” in the U.S. and after undertaking a strategic review of its options, is choosing to exit the U.S. entirely.
“We have taken the difficult decisions to exit our businesses in both Australia and the U.S. 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,” Purplebricks CEO Vic Darvey said in a statement.
Darvey became Purplebricks’ CEO in May after the company’s founder and previous CEO, Michael Bruce, stepped down.
It’s a swift fall for Purplebricks, which entered the U.S. in August 2017 with big plans. The company touted its commission-free real estate model, which it claimed could save home sellers thousands of dollars when conducting a real estate transaction.
Purplebricks claimed that what set it apart is that home sellers only need to pay a flat fee of $3,200 to list their home and, upon closing, pay the buyer’s agent commission. The flat fee was the same for homes of all values.
Media Giant’s Investment
The company’s business plan got a stamp of approval from European media giant Axel Springer, which invested $177 million in the company last year. In exchange, Axel Springer acquired 11.5% of the company.
According to Purplebricks, the injection of funding was to be used to “accelerate Purplebricks’ expansion into new target markets, advance technological innovation and expand the company’s service offering.”
At the time, Purplebricks said that $71 million of the $177 million was to be set aside to accelerate the company’s growth in the U.S. According to the company, the $71 million from Axel Springer is approximately twice as much money as the company had used to fund its U.S. operation thus far.
The company’s first U.S. market was Los Angeles, before later expanding to Fresno, Sacramento, and San Diego.
The company was already plotting its next move in the U.S., announcing last year that it was expanding New York. According to the company’s website, Purplebricks services have been available in the Phoenix area, the Orlando area, the Los Angeles area, and the New York area.
“Axel Springer’s strategic investment in Purplebricks’ platform is a clear endorsement and a reflection of confidence in our business model and global ambitions,” Bruce said just over a year ago.
“This investment will serve to more quickly bring our highly-differentiated, cost-effective and consumer-centric model to buyers and sellers in new markets across the U.S,” Bruce continued.
Now, just over one year later, Bruce is out as CEO and Purplebricks is getting out of the U.S.
According to the company, Purplebricks spent approximately $66 million on its foray into the U.S. and is expecting the “initial cut” of the closure costs to be between $5 million and $7.5 million.
In his statement, Darvey said the company expects its exit from the U.S. to be “conducted in an orderly manner” and completed by the end of 2019.