Description

Summary:

PurpleBricks describes itself as a hybrid estate agent. It is growing rapidly and had become the number one player in the UK market by listings; it has also entered the US and Australian market. It is a controversial company and our work suggests investors may be overlooking significant weak business practices which may ultimately risk the company. Our view is that there is a small but distinct possibility that investigation by regulators of its business practises could lead to considerable penalties.

UK Real estate practices:

Each country has its own real-estate practise and business structure. We shall start with a brief primer on the UK market.

UK real-estate brokers are known as ‘estate-agents’ and usually represent the seller (there are few buying agents). Typically estate agents are based in retail outlets on the high-street. The fee structure has come down considerably over recent years and is currently estimated to be 1.3% (of the transaction price) plus VAT on average (source: search for mention of myhomemove in the following link http://hoa.org.uk/advice/guides-for-homeowners/i-am-selling/how-much-should-i-pay-the-estate-agent/ ).

The actual fee is usually decided pre-listing by negotiation – factors include the price of the property, local competition between agents, sole or multiple listing and the ease or complexity of the sale.

Several real-estate portals dominate the UK market and most estate agents will be paying members of two or more of them including Rightmove, Primelocation, Zoopla and OnTheMarket.

Though there are many single branch agencies, over time there has been significant consolidation and it is not untypical to see an agency that is a member of a branch network. The biggest listed traditional agencies are Foxtons (particularly focussed on the London market) and Countrywide (a number of different chains / brands nationally).

It would be fair to say that the estate-agency ‘profession’ is the regular butt of jokes and estate-agents are generally considered to be untrustworthy.

History of PurpleBricks:

PurpleBricks was founded in 2012 (originally as New Portal Limited and then New Broom Limited – see https://beta.companieshouse.gov.uk/company/08047368 ) by Michael and Kenneth Bruce. The chairman is Paul Pindar (previously CEO of Capita which grew to several billion in sales under his tenure). It is backed by renowned investor Neil Woodford (Woodford Asset Management owns 26.99% having backed the company when it was private).

Michael and Kenneth Bruce ran a previous estate agency, Burchell Edwards which they sold to a national chain (Connells) in 2011.

In comparison to the traditional estate agent model of a percentage of the transaction value, PurpleBricks claims it has a fixed fee (£1,199 in London, £849 outside of London) thus saving customers thousands. Its advertising in essence claims that you can have the services of a qualified estate agent without the cost.

Issues:

1.       The company is litigious

One of the things that often attracts the attention of short sellers is a litigious, aggressive and thin-skinned company and management team. In what follows it will be noted that the company appears to ‘tick’ this criteria.

However, to avoid too much ‘controversy’ (ie litigation risk), in the following in some cases we will point to ‘further reading’ and deploy a degree of circumspection in our discussion.

2.       TrustPilot Reviews

The company’s advertising has historically prominently highlighted its ‘five star’ rating from TrustPilot reviews. However a number of people have noted that either the reviews appear to have similar wording. (note that there was a page on www.tabhair.com that noted the occurrence of the word ‘excellent’ in several reviews – that page now appears to have ‘gone’ ) or that negative reviews appear to be removed (for ‘verification’) from Trustpilot (eg search the tweets from PeeBee (@Agent_PeeBee) and from Oscars Cat (@Oscars_Cat)  on twitter.

Customer experiences can also be reviewed at https://www.mumsnet.com/Talk/property/2332515-Purple-Bricks-Stories-please?pg=1

(PeeBee has also highlighted other ‘anomalies’ eg on occasion more than one review from one customer within a matter of weeks; possible reviews by LPEs)

(Some Trustpilot reviews that have been removed are at https://justpaste.it/15ii7 )

(For the sake of even-handedness – the company would argue that they have the right to have reviews removed if they cannot ‘verify’ that the review is genuine. )

The following website (http://www.propertyindustryeye.com/purplebricks-clarifies-pass-offers-vendors-even-sale-agreed/ - see comment by Garret2 at 9:50 on 28 Oct 2016) suggest that PurpleBricks encourages customer feedback on Trustpilot prior to completion of a sales process which might inadvertently distort the scoring of reviews.

3.       AllAgents

The AllAgents website also carries reviews of estate agents in the UK. On AllAgents, PurpleBricks was consistently receiving a more ‘diverse’ spread of opinions than the 5 stars of TrustPilot would suggest. (On AllAgents, the company was scoring 2.5 or less out of 5 and consistently was circa 13,000 out of approx. 15,000 agents in the UK).

However from the 21 September 2017 AllAgents has ceased to carry reviews on PurpleBricks after the threat of litigation – see https://www.allagents.co.uk/purplebricks/

It will be noted that Allagents is currently trying to crowd fund a fighting fund against Purplebricks - https://www.crowdfunder.co.uk/help-us-fight-corporate-bullying-from-purplebricks-1

4.       LPE – Local Property Experts

The PurpleBricks model involves the use of local property experts (‘LPE’s) to visit your house to provide a valuation, take photographs, organise the paperwork and list the property. The LPEs appear to be generally independent self-employed contractors.

Chris Wood of PDQ (a small estate agency in Cornwall) has raised issues relating to the legal status of the LPEs – as independent contractors do they need to be separately registered with professional and regulatory bodies (eg for money laundry, for the data protection act etc).

He has also raised issues about how local the LPEs are, and indeed whether they all have previous experience in property and whether that experience would be considered sufficient to be an acknowledged expert. Chris Wood has faced the threat of litigation – the letter from PurpleBricks’ lawyers is here - https://blog.pdq-estates.co.uk/2017/08/24/attempted-intimidation-by-a-plc-or-fair-comment/

Readers may also consider reading this - https://blog.pdq-estates.co.uk/2017/04/12/purplebricks-what-is-really-going-on/ and also consider the implications of UK court rulings on whether eg Uber drivers are independent contractors or employees.

A related issue is how much LPEs are making per annum – historically PurpleBricks has suggested in LPE recruitment advertising that an LPE can earn £60,000 (and more recently £45,000) per annum. This appears to be a gross figure before any costs (eg travel, car, telecoms, computer etc) and the cost of working from home or renting an office. Some number crunching has suggested that the true LPE earnings might be significantly lower than this (eg see comment by ‘Keyser Soze at 11:48 on 28 Oct 2016 in http://www.propertyindustryeye.com/purplebricks-clarifies-pass-offers-vendors-even-sale-agreed/  - note also that the main body of the article questions whether PurpleBricks is failing to pass all offers to vendors and hence breaking some estate agent regulatory rules).

5.       Success fee vs fixed fee

In the UK the typical estate agent’s fees are only paid on success. In comparison the PurpleBricks fee is payable either upfront or can be deferred to ten months (or completion if earlier). Before the AllAgents site suspended its reviews of PurpleBricks, some of the reviews had suggested that not all customers had realised, at the time of signing, that the ten month deferment was just that – a deferment and not payable _only_ on success.

Whether a customer will be better off using PurpleBricks versus a traditional estate agent thus depends on the probability of a successful sale with PurpleBricks. Whereas Foxtons and Countrywide give the number of sales to completion in their results, in the case of PurpleBricks the data is ‘sold subject to contract’ (ie subject to solicitors completing the legal process – known in the UK as conveyancing).

PurpleBricks is alleged to have claimed at times that revealing the completed sales number would be giving away competitive information. It is not entirely clear why the company should think this given that its major competitors provide this information.

(Note: in the UK a ‘sale to completion’ means that the parties have exchanged contracts and the deal has closed; whilst ‘sale subject to contract’ means that a party can still withdraw. Our supposition is that a poor and slow conveyancing service (from a law firm) can lead to a risk that a deal ‘breaks’. )

We shall return to these issues shortly.

6.       Comparable fees: Viewing and negotiation

A traditional estate agent will often accompany a buyer on a tour of a house. It seems that PurpleBricks charges an extra £300 (including VAT) for this (see https://www.purplebricks.co.uk/faqs under ‘What is included in my selling fees’).

At least some articles also suggest PurpleBricks LPEs charge a fee to negotiate with buyers on behalf of the seller (we estimate that this is around £300 including VAT). However we have had difficulty confirming this.

7.       When is a loan not a loan?

The fees do not end with what we have described above.

Remember the ten month deferment option? Technically that involves an arrangement with a third party – Close Brothers which provides the financing for this period. We would recommend viewing of the following from the BBC Watchdog programme- https://www.youtube.com/watch?v=tW4t33UYHvc – it is clear the CEO, Michael Bruce is keen to avoid calling this arrangement a ‘loan’ (he refers to it as an (unregulated) ‘facility agreement’ (around 10:34). However the following tweet (see @ChilternsLtd tweet of 2 August 2017 - https://twitter.com/ChilternsLtd/status/892878128741265408 ) appears to show that Close Brothers refers to it as a loan agreement.

As will be discussed later we believe the description by the finance lender of the arrangement as a ‘loan’ is crucial to any potential regulatory action.

(Incidentally in the video the CEO goes out of his way to talk about the company being ‘transparent’. We would observe in passing that our section on fees might lead observers to other conclusions).

8.       Conveyancing

Though the ten month fee deferment is interest free it does require customers who succeed in selling their house to use a conveyancing service referred to by PurpleBricks (EzieConveyancing) OR pay £360 (incl. VAT) to PurpleBricks (see http://www.legalbeagles.info/forums/showthread.php?89369-Purple-Bricks-Conveyancing ).

(Note the following site states £426.50 including VAT (which would equate to £355.42 before VAT)- http://www.propertyindustryeye.com/purplebricks-says-it-does-not-receive-excessive-referral-fee-for-conveyancing/ ).

If EzieConveyancing is used the cost appears to be £599 - but again we have some uncertainty around this number as we have found some posts / blogs / forums suggesting a higher price.

We defer the reader to judge what legal service they would get if, out of a legal fee of £599, only £172.50 goes to the lawyers and £426.50 (minus VAT) is paid to PurpleBricks as a referral fee.

The following links might be helpful to form an opinion - https://uk.trustpilot.com/review/ezie-eclient.co.uk and https://www.solicitor.info/solicitors/premier-property-laywers/3444/1 and http://www.legalbeagles.info/forums/showthread.php?89369-Purple-Bricks-Conveyancing   (we have reason to believe that Ezie Conveyancing, Premier Property Lawyers and Advanced Conveyancing are interrelated entities – see item #13 on this page http://forums.moneysavingexpert.com/showthread.php?t=5375451 ).

9.       Putting it all together:

It will be apparent from the above that it is not entirely easy to find a single page with all of PurpleBricks fees. Our estimates of fees are the following (assuming a ten month deferral on fees):

                                            Inside London                                 Outside London

‘Listing fees’                    1,199                                                  849

Viewing fees                   300                                                      300

Negotiating fees            300                                                      300

Conveyancing fee         432                                                      432

                                            =======                                           =======

                                            2,231                                                  1,881

We fully acknowledge that the above may not be correct – in particular we are unsure on the negotiating fees and whether the conveyancing fees are constant across the country. However we would refer back to the CEO’s comments in the BBC Watchdog interview that PurpleBricks prides itself on transparency.

10.   Probability of sale

Of course, the above only tells half the story – since what really matters to a customer is also the probability of sale and the price obtained.

As will be seen from https://www.estateagenttoday.co.uk/breaking-news/2016/7/purplebricks-blasted-over-sales-totals-and-speed-of-completions at least one analyst has disputed the number of listings that PurpleBricks converts to sales. In the following article there is a suggestion that completion rates are only 30% - https://www.estateagenttoday.co.uk/breaking-news/2017/4/purplebricks-called-cynical-disingenuous-by-agents-trade-body ; whilst others have suggested the completion rate is 57% (see http://www.propertyindustryeye.com/surprise-as-proptech-firm-comes-down-firmly-on-side-of-traditional-agent/ and https://www.getagent.co.uk/labs/online-agents )

Of course the company could clear all the questions by giving detail on the number of sales to completion (as opposed to ‘SSTC = sold subject to contract’).

One might ask why do the percentage completions matter? For convenience of maths lets assume only 50% of instructions reach a completed sale. Thus for 50% of customers they have to either give up on the sale or subsequently sign up a traditional agent – and so have effectively ‘wasted’ at least £849 (assuming outside of London and no additional fees paid etc).

11.   Price achieved

When evaluating estate agents it is not merely the cost and probability of sale that matters but also the price that it achieved. Comparing the price achieved is notoriously difficult as one agent might start with a consistently higher starting price than another. Nonetheless some research suggests that online agents achieve a lower percentage of the asking price than traditional agents - see https://www.estateagenttoday.co.uk/breaking-news/2017/5/top-high-street-agents-significantly-out-perform-onliness-says-group .

To use the extremes in this article the 1000 top high street agents achieve 100.35% of the asking price whilst 10 online agents achieve 95.85% - based on an average final sale price (as quoted in the article of £234,000) it does not take long to realise that online estate agents might actually net (ie price achieved for a house  sale minus agents fees) a seller less than a traditional high street agent.

Some tweets, blogs, reviews etc appear to back up the view that pricing achieved by online agents is lower than that achieved by traditional agents.

12.   Advertising Standards Authority

The company has been subject to a number of investigations and rulings by the Advertising Standards Authority. The latest ruling is at https://www.asa.org.uk/rulings/purplebricks-group-plc-a17-384367.html . The results have been ‘mixed’ – ie the company has won some and some complaints have been upheld in part. (Both formal rulings and informal resolutions can be found at https://www.asa.org.uk/codes-and-rulings/rulings.html?q=purplebricks#rulings )

Among issues the ASA has dealt with is whether the ‘local property experts’ employed by PurpleBricks are indeed local or expert. We would note in passing that the UK’s Consumer Rights Act 2015 Section 49 might have some relevance here – but that the ASA would not necessarily be the right forum to judge that (the act requires services to be performed with reasonable care and skill – see http://www.legislation.gov.uk/ukpga/2015/15/section/49/enacted )

One issue that has not been investigated so far by the ASA is whether the Trustpilot reviews of PurpleBricks are entirely representative of the experience of property sellers.

13.   Tying and Bundling of Services

Followers of the UK financial services sector will be aware of the PPI (payment protection insurance) scandal where banks ‘encouraged’ (or ‘advised’) customers that in order to secure a mortgage they needed to take out (expensive) PPI with the bank. This scandal has cost banks several billion (see https://en.wikipedia.org/wiki/Payment_protection_insurance ).

The UK financial services regulator takes a dim view of ‘tying’ and ‘bundling’ of services such that one service is required in order to access another service.

It will be noted in the discussion above that at least one image (see reference in section 7 to a tweet of 2 August 2017) suggest that Close Brothers refers to the deferment facility as a loan, albeit with zero interest rate. However to access the deferment the customer is required to sign up to the conveyancing service recommended by PurpleBricks or pay a fee of £360 (plus VAT).

We are not lawyers however we would make the following observations:

-          The CEO (Michael Bruce) went out of his way in the Watchdog video to avoid calling it a loan – we believe there was a reason for this (he is a trained lawyer)

-          The FCA (Financial Conduct Authority) took over the regulation of consumer credit on 1 April 2014 (see https://www.fca.org.uk/publication/consumer-credit-information/consumer-credit-quick-guide.pdf ); the FCA applies 11 fundamental principles that firms must comply with at all times – see https://www.handbook.fca.org.uk/handbook/PRIN/2/1.html#D3 - the important point to note is that the UK FCA regulatory regime is principles based - and includes the requirement to treat customers fairly

-          The UK consumer credit act exempts credit agreements where the payment is with less than 12 instalments and less than 12 months; this was designed we understand to avoid eg gym memberships from becoming loan agreements; and so we believe the rules only apply if there is no interest charge

-          however by tying and bundling the deferment with the need to use PurpleBricks conveyancing partner or paying the exit fee one might consider that there is a hidden fee (and Close Brothers (a regulated bank) referring in letters to the facility being a loan) means that the arrangements are under the FCA regime

-          if this 10 month period is a loan (and after all that is how Close Brothers refers to it) then there is usually a required ‘cooling off period’

-    we anticipate that if the FCA were to judge the situation, it would to first principles and consider that the deferment option is indeed a disguised loan

If we are correct in our observations this raises the issue whether the PurpleBricks ‘deferred payment’ option is legally valid or an unfair contract. Potentially the FCA might act as rigorously as it did with UK banks and require compensation for all those customers who have had to pay for conveyancing via PurpleBricks.

Some of the (now removed) AllAgents reviews also suggested that some customers had not in fact been aware that the 10 month option was in fact a deferment (as opposed to pay only on success which is the traditional UK estate agent model) which raises a further issue whether customers whose property was not sold by month 10 are subject to unfair contracts. The test surely would be whether that specific customer was made aware of the need to pay at 10 months. One might surmise that a court of law or the FCA might be more rigorous in testing claims than the ASA.

Furthermore for financial products the tests regarding informing a customer of his / her rights and ensuring the validity of the contract are more rigorous than merely advertising rules.

14.   Other regulators

The UK estate agent market has a number of self-regulatory bodies. In a Radio 4 interview on the same day as the Watchdog video highlighted above, the CEO stated that ‘The Property Ombudsman’ (TPO) was aware of the ‘unregulated facility agreement’ – see https://www.estateagenttoday.co.uk/breaking-news/2017/8/purplebricks-share-price-dips-after-agency-slated-on-bbc-show  We think the TPO would not be the correct regulator to consider a loan bundling / tying issue (it is a FCA issue).

The board of TPO is at https://www.tpos.co.uk/about-us/board - we note that Gerry Fitzjohn, chairman of the board is an experienced property executive and previously COO of the TPO – see https://www.estateagenttoday.co.uk/news_features/New-chief-operating-officer-takes-helm-at-TPO . We observe in passing that his CV on the TPO website does not mention JKM Property Solutions where he was on the board with the Bruce brothers. https://www.estateagenttoday.co.uk/news_features/Harry-Hill-property-firm-gets-set-to-wind-down  Since the TPO has an independent ombudsman (see https://www.tpos.co.uk/about-us/governance ) we are sure this is a mere oversight.

The National Federation of Property Professionals is another industry body. We note that on 25th June 2015 it held a disciplinary tribunal hearing with respect to Kenneth Bruce where he admitted guilt with respect to Rule 2(2)(b) and Rule 5 – see http://www.propertymark.co.uk/media/1044217/x0054010-determination.pdf We note that Rule 2(2) related to ‘certain kinds of disgraceful behaviour which may adversely affect the public….or are seriously detrimental to the Association’. So far we have not been able to ascertain the details of the allegations. We observe that Kenneth Bruce stepped down from the board of PurpleBricks in November 2015; the company floated in December 2015.

For reasons that, as far as we can tell, are buried in the annals of history, the UK’s national regulator of Estate Agents is based in Powys County Council – see http://www.powys.gov.uk/en/licensing-trading-standards/national-trading-standards-estate-agency-team/  We note that their website states that fees and charges have to state ‘any other circumstances in which the client would have to pay an additional fee’ and ‘the amount of any additional fee’ (see http://www.powys.gov.uk/en/licensing-trading-standards/national-trading-standards-estate-agency-team/advice-for-estate-agents/#c17898 ) We are not entirely convinced, from reading customer reviews (including those that were suspended on AllAgents) and reviewing the PurpleBricks website that PurpleBricks has been entirely adherent to these requirements.

15.   LPE contracts

The nature of PurpleBricks relationship with LPEs has evolved. It appears that at some point the LPEs relationship was controlled using a template from the British Franchise Association (see https://pzwoody.wordpress.com/2017/04/12/purplebricks-what-is-really-going-on/ and https://blog.pdq-estates.co.uk/2017/04/12/purplebricks-what-is-really-going-on/ - note that Chris Wood changed his website but some of the comments on the older website are pertinent ). Most analysts currently describe the LPEs as ‘self-employed’.

Between the company and the LPEs there is also a layer of ‘area owners’ (or territory owners). As highlighted in the preceding weblink this raises the issue whether the LPEs need individual registration with various regulatory bodies (eg the Information Commissioner’s Office, HMRC etc).

The key one for us is how the independence of the LPEs plays with them offering deferred payment terms to customers if those deferred payment terms are indeed loans under the purview of the FCA – currently we have no satisfactory answer. (Our understanding is that each individual agent, if self-employed would have to be FCA registered to offer loans or financial products - and be appropriately trained).

The nature of LPEs payments is described here - http://www.suttonscityliving.co.uk/blog/purplebricks-to-recruit-hundreds-more-local-property-experts/

It will be noted that LPEs face a £200 deduction per complaint. Some sources have suggested that any complaints / negative Trustpilot reviews go back to the LPE complained about for comment / consideration - if this is correct then facing a £200 deduction might motivate less scrupulous LPEs to sit on complaints or refuse to accept them.

16.   Burchell Edwards

We have found over the years that there can be substantial insight gained by looking at a management’s previous business experience. We note that the Bruce Brothers ran Burchell Edwards which they acquired in 2006. Unfortunately it went bankrupt in 2008 as a result of the property downturn but the brothers were able to acquire the name and some branches from the administrator in a ‘pre-pack’. They sold this business in 2011 to Connells.

JKM Property Solutions was their next business venture. As mentioned earlier this company unfortunately closed down. Some contemporaneous reviews are here:

• http://forums.moneysavingexpert.com/showthread.php?p=43856948&highlight=#post43856948

• https://www.rateragent.co.uk/branch/jkm-property-solutions-burton-on-trent/4050

• http://forums.moneysavingexpert.com/showthread.php?t=3221360

• http://forums.moneysavingexpert.com/showthread.php?p=45983047

• (Note that the last two links probably end at the same place)

As an interesting insight into estate agent practises re bundling etc (and entirely unconnected with the Bruce brothers as these threads refer to dates after the sale of Burchell Edwards to Connells) the following thread might be of some interest:

-          http://forums.moneysavingexpert.com/showthread.php?t=5196062&page=3

-          http://forums.moneysavingexpert.com/showthread.php?t=4608979

17.   Portal model

Our understanding is that most traditional estate agents pay a fee per branch for membership of the key property portals such as Rightmove and Primelocation. In the case of PurpleBricks, though it is hard to be certain, our impression based on how the listing are filed, PurpleBricks pays either for one national branch or on a regional basis rather than per ‘virtual’ office or LPE. We suspect that it is likely over time that traditional estate agents will question this and pressurise the portals to change their pricing model.

We also understand that the portals do not take direct adverts from consumers. However a number of low cost hybrid or purely online agents act as service providers to help consumers list their own property – doorsteps.co.uk , housesimple.com , tepilo.com, yopa.co.uk and emoov.co.uk . Though PurpleBricks is clearly the biggest online player (we would argue due to it outspending other players in marketing) the intensity of the competitive landscape is being overlooked by some investors; as is the risk of the portals changing their charging structure.

Expansion into Australia and the USA

We believe that the UK investor community is overestimating the ease of expansion of PurpleBricks into the Australian and the US markets and is underestimating the local competition (eg Redfin and the MLS system in the US).

We observe that there are similar concerns about the quality of the five star ratings for PurpleBricks in the US as there are in the UK. The PurpleBricks US website references the TrustPilot ratings for the UK website (see https://www.purplebricks.com/ re ‘Over 25,000 UK reviews on independent review site Trustpilot’) – this potentially brings the process of creation and editing UK reviews into the view of US courts.

Furthermore the US website states in the FAQS, in response to the question ‘Am I more likely to get a better price for my property with a traditional Real Estate Agent?’ ‘No.’ (it then goes on to discuss how they analyse local markets etc) (See https://www.purplebricks.com/faqs ). This seems highly categorical and potentially at risk of challenge in US courts.

Putting it altogether

Our short thesis on PurpleBricks is based on:

(i)                  The litigious nature of the company – in our experience such companies typically become ‘unstuck’

(ii)                Question marks on how transparent the fee structure is

(iii)               Questions whether on a like-for-like comparison the fees are really truly cheaper than traditional estate agents; particularly when adjusting for the probability of a successful sale and adjusting for the price achieved. If we are correct on this issue then the older adage of ‘you can’t cheat all the people all of the time’ comes to mind.

(iv)               Whether the deferred payment option being tied with a conveyancing agreement risks the interest of the FCA and whether, in such a case, compensation might have to be paid to historic customers of this option. (Some commentary suggests at one time 80% or more of customers were using this deferred payment option).

(v)                Whether the UK investor community is over-estimating the ease of entry into the US and Australia

(vi)               Whether the review sites publicised by the company reflect the unblemished truth or not with respect to the consumer experience and whether that leads to any ‘liabilities’.

The big issue in all our concerns is whether this company is selling a disguised loan with unfair contract terms - this clearly is something that would have to be decided by regulatory (ie FCA) or legal (ie court) review. The probability of such a review is clearly low - but the impact of such a review could be devastating for the company. Putting this to the side we think the company is anyway ‘optimistically’ valued with a high probability of overambitious expansion.

Disclaimer - funds we advise hold a short position in the stock

Catalyst

1. Regulatory review into whether the company is selling a financial loan within its deferred payment option

2. Shortfall vs overambitious global expansion.