An investment consultancy has issued a note to investors, advising them not to buy shares in Purplebricks.
Jefferies – the firm which advised Zoopla on its flotation – says 'whether people buy or sell homes through Purplebricks, we don't recommend that they buy shares in the company'.
"The numbers in the business model look very attractive, however it is our view they don't add up," the note reads.
The investment firm says Purplebricks' model favours 'listings over sales' and that costs will need to increase for the agency to increase its number of sales.
Jefferies' analysis suggests that each one of Purplebricks' Local Property Experts will need to win as many instructions each week as the average estate agency branch in order for the model devised by Michael and Kenny Bruce to be successful.
"With no reward for actually selling a home, all eyes are focused on winning instructions, especially if Local Property Experts want to get close to the advertised On Target Earnings," the note reads.
"We believe that, over time, Purplebricks' cost and reward structures will need to change in order to both attract and retain the number of Local Property Experts underpinning current consensus estimates."
The note goes on to reference the hybrid agency's average sale time.
It quotes Purplebricks as saying that it takes an average of 14 days to find a buyer. Jefferies says its analysis shows that it takes Purplebricks closer to five months to actually complete a sale on average, around ten times longer than it takes to find a buyer.
The note questions whether Purplebricks would be a more 'disruptive' force if its Local Property Experts were incentivised for completions, rather than just instructions.
"In our view, Purplebricks is currently priced for perfection, and yet we believe this early stage disrupter has yet to prove the efficacy of its business model," the note concludes.
"Should the model stumble, the share price may do likewise."
Last week, online estate agency comparison site SellingUp.com released figures showing that Purplebricks had more stock at the beginning of May than its four closest rivals combined.
The website's research director, Oliver Lewis, claims that a merger between competitors or another stock market flotation is the only way Purplebricks' dominance of the online estate agency sector can be challenged.
Purplebricks' pre-float prospectus showed the company made significant losses in its first three years of operation.
In its trading update to the City last month, the agency reported that it expects full year revenue to be approximately £18.5 million.
Purplebricks' next update is due later this month on June 16, when it will announce its full year final results.