Investor Warning: What Happens To the “Disrupters” When They Lose Their Power to Disrupt?
I read an article quite recently titled “Purplebricks gets stock market commentator support – if strategy pays off” written in response to an article by columnist Ian Pierce on the investment website, Motley Fool. Sadly, there were no great revelations in Ian’s article, but he did quite rightly strike one or two notes of caution about the meteoric rise of Purplebricks share price. I quote;
“But is disaster around the corner with the company still running at a loss, embarking on ambitious overseas expansion and recently tapping shareholders for a £50m rights issue?”
“Would be investors should exercise caution because at its current price, Purplebricks is highly valued, which is always dangerous when it comes to loss making disruptors.”
Now in the interest of balance and to be completely fair to Mr Pierce, he did also talk up the potential of Purplebricks with statements such as “Since going public in December 2015, shares of hybrid online estate agent Purplebricks have rocketed 197% in value due to fast growth and huge long term potential” etc, so it was a balanced piece, even if he did leave his readers a little bemused as to where he actually stood with regard to their potential investment.
Now, could I ask you to directly contrast Purplebricks success as a City investment favourite with the collapse of Countrywide Group’s share price over roughly the same period? Contrasting fortunes indeed, and perhaps a classic example of the importance of perception when investing – as one company is seen to be in the ascendency despite never making a profit, whilst the other appears to be (in the eyes of both city analysts and investors) in retreat despite still making a profit.
Now much has been written about both Purplebricks and Countrywide Group, and I see no point in regurgitating old news, as I wanted to make a much broader point about market behaviour in general. Now many of you will know that a significant number of the larger estate agency groups in the UK have either invested in or acquired online estate agencies, or alternatively are proposing to roll out their own “hybrid” offering – so no new news here I hear you say?
Well true, but I predict that over the next few years, virtually all estate agency groups whether large or small, independent or corporate across the UK, will trade (in part at least) using their own on line proposition. Which means in effect that the debate between traditional estate agency verses on line operators, will at last become extinct – with the vast majority of agents adopting a version of their own “hybrid” model.
To illustrate my point, might I draw your attention to the fact that only 15 or so years ago, the majority of estate agents in the UK didn’t have a lettings & property management department. Whereas now it is unusual for this not to be the case – as agents adapt and evolve their services to meet market need. Well, dare I suggest that offering a tiered range of on-line fee options to meet the demands of today’s savvy online consumer, is really no different.
So, what will this mean for the future of UK estate agency? Well, if you consider your business to be high street and “full service”, you need to start developing your own on- line fee/service menu for potential clients that are (initially at least) seeking a cheaper more DIY option – even if they do ultimately upgrade to your “full service” offering. However, should you choose not to heed my advice, then I would venture to suggest that you will steadily lose market share and more importantly perhaps, play a significant part in hastening your businesses ultimate demise.
But given what I have said above, where will all this leave Purplebricks and their share price in the years ahead? Well the outlook is not so promising for the so called “disrupters” either, for if I am right in my prediction, and a significant number of high street estate agents start offering “hybrid” services- then there is surely less reason for the UK consumer to use Purplebricks now “not so exclusive” services – meaning the “disrupters” will have been “disrupted” by the very same high street agents they sought to “disrupt” in the first place! Just how ironic is that?
So, if you are already an investor in Purplebricks, or maybe just thinking of investing, you may want to reflect on the sage advice of the late billionaire businessman, James Goldsmith, whose surely greatest ever quote was “if you can see the crest of a wave – it’s too late” – so please don’t say that you haven’t been warned.
The author of this article is Peter Nicholls CEO of Ideology Consulting. For more information, go to www.ideologyconsulting.co.uk
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