The Purplebricks (LSE:PURP) share price crashed by over 30% this morning after it released its latest trading update. It warned of challenging business conditions due to an insufficient supply of housing coming to market.
There appears to be strong demand from potential house buyers, but that isn’t being met by sufficient housing stock. In fact, new instructions were 23% below the same period last year.
As an online estate agent, Purplebricks is reliant on both demand and supply of available housing to let or purchase. But when there’s an imbalance it can cause significant business disruption. CEO Vic Darvey noted that “properties are selling quickly, but the reduced amount of stock coming to market is proving challenging”.
In addition, business transformation during the first half of the year resulted in higher costs. This reduced cash from £75.8m to £58m in the 12 months to 31 October. Its business model changed with new pricing and a different proposition. It also incurred greater costs from moving its sales team from self-employed to fully employed. That said, it expects its cash position to stabilise in the second half of the year.
Purplebricks share price weakness
Purplebricks still expects to achieve annual sales growth of 20% in the medium term, but it’s working against a challenging backdrop. Its mission remains achieving a “10% market share by being the go-to-place to buy, sell, or let your home”.
After today’s decline, the Purplebricks share price is down by over 40% in the past 12 months and over 90% lower than its all-time-high.