Despite posting a 48% year-over-year net income growth, eToro (NASDAQ: ETOR) reported third-quarter results that revealed a sequential slowdown, with net contribution inching up just 2.4% from the previous quarter.
Shareholders, however, appear to be reacting positively to the newest report, and the company’s stock was up 9 percent in premarket trading.
eToro Posts Modest Q3
Growth as Revenue Levels Off
The trading
platform posted a net contribution of $215 million for the three months ended
September 30, up from $210 million in the second quarter. The company’s net
income reached $57 million, a jump from $30.2 million in Q2, though the earlier
period included $15 million in IPO-related costs that skewed the comparison.
CFO Meron
Shani touted the results as proof of “profitable growth” and
“disciplined cost management,” noting that adjusted EBITDA climbed
43% year-over-year to $78 million. But the sequential quarter told a different
story, with adjusted EBITDA rising just 8.3% from Q2’s $72 million.
However, on an annual basis, the results look much stronger for eToro. Revenue was up 28% from a year earlier, while net income rose 48%.
User Growth Hits Speed
Bump
The company
added 100,000 funded accounts during the quarter, bringing the total to 3.73
million, a modest 2.8% increase from 3.63 million at the end of June. Assets
under administration grew to $20.8 billion, up 18.9% from $17.5 billion in Q2,
driven largely by market appreciation rather than new deposits.
eToro’s
user acquisition engine appears to be cooling after its May initial public
offering. While the company blamed no specific factor, the growth rate has
decelerated from earlier in the year when it absorbed customers from its 2024
acquisition of the Australian app Spaceship.
“We
are focused on increasing our customer base and share of wallet,” Shani
said, though the quarterly numbers suggest that’s becoming harder to achieve.
October Metrics Show Mixed
Signals
In an
unusual disclosure, eToro released selected October business metrics that
painted a picture of volatile trading activity. Capital markets trades surged
53% year-over-year to 62 million, while crypto trades jumped 84% to 5 million.
However, assets under administration slipped to $20.5 billion in October from
$20.8 billion at quarter-end, suggesting either market declines or customer
withdrawals.
Funded
accounts ticked up to 3.76 million in October, adding just 30,000 users in the
month, a pace that would deliver annual growth well below the company’s
historical rates.
Buyback Raises Questions
About Capital Strategy
The
company’s board authorized a $150 million share repurchase program, with plans
to execute an initial $50 million through an accelerated buyback. Management
framed the move as a sign of confidence, claiming “its current share price
does not fully reflect the Company’s fundamental value.”
The
repurchase authorization also serves another purpose: giving eToro currency for
potential acquisitions. The company disclosed that buybacks provide
“additional flexibility to support potential future strategic initiatives,
including mergers and acquisitions, where eToro shares could serve as an
effective transaction currency.”
That
language suggests management may be eyeing deals, though no specific targets
were mentioned. With $1.2 billion in cash and short-term investments on the
balance sheet, eToro has the firepower to pursue transactions beyond what its
stock would fund.
Revenue Mix Stays
Concentrated in Crypto
The
company’s reliance on cryptocurrency trading remains acute. Revenue from
cryptoassets totaled $3.97 billion in Q3, though cost of revenue consumed $3.89
billion of that figure, leaving net contribution from crypto of just $77.4
million. That crypto margin came in below Q2’s crypto contribution,
highlighting the thin economics of cryptocurrency intermediation.
Traditional
equity trading delivered $72.9 million in net contribution, down from $114
million in the second quarter. Net interest income provided another bright spot
at $58.9 million, up from $43.9 million in Q2, as the company benefited from
higher balances in customer accounts.
Product Rollout Continues
Across Four Pillars
CEO Yoni
Assia outlined continued product development across what the company calls its
four strategic pillars: trading, investing, wealth management, and neo-banking.
The third quarter saw the launch of 24/5 stock trading for all S&P 500 and
Nasdaq 100 stocks, expanded futures access in Europe, and the introduction of
Copy Trading in the United States.
“As eToro continues to scale, we
believe we are well-positioned to capture the significant growth opportunities presented by the inevitable macro tailwinds and
deliver long-term shareholder value,” he said.
The
company’s eToro Money accounts reached 1.75 million, with debit card issuance
jumping 2.4 times from the second quarter. The Money product offers up to 4%
stock-back rewards on purchases.
Cost Control Improves, But
Expenses Rise
Total costs
increased to $4.04 billion from $2.06 billion in Q2, driven almost entirely by
the cost of crypto revenue, which mirrors the company’s transaction volume.
Operating expenses, combining R&D, sales and marketing, and general
administrative costs, totaled $143.2 million, down from $167.7 million in the
second quarter.
The company
spent $37.9 million on research and development in Q3, down from $38.9 million
in Q2. Sales and marketing expenses dropped to $47.9 million from $52.6
million, suggesting either improved efficiency or reduced customer acquisition
efforts.
Finance
expenses of $2.6 million were down sharply from $6.3 million in Q2, although the company did not provide an explanation for the decline.
eToro Engaging Kalshi and Polymarket
Notably, eToro is in discussions with Kalshi and Polymarket to
potentially add event contracts to its platform, according to Assia’s announcement
during the Q3 earnings call on Monday.
“We are talking to Kalshi and Polymarket, obviously, the
market leaders in prediction markets. And we are excited about exploring the
path of our users to be able to trade prediction markets on financial events.”
Assia said eToro’s existing infrastructure, which already
supports futures and cryptocurrency products, could be adapted to include
event-based trading instruments offered by the two platforms. He expressed optimism that prediction markets focused on
financial products and geopolitics create significant value.
This article was written by Damian Chmiel at www.financemagnates.com.
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