Purplebricks share price crashes 30%! What’s going on?

The Purplebricks share price tumbles on a profit warning. Here I take a look at what caused the big drop.

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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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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