Social trading focused Retail FX and CFDs broker eToro – which recently achieved unicorn status – has reported 2019 financials for its FCA regulated eToro (UK) Limited subsidiary, indicating growth in revenues but a net loss for the year as the company began to onboard Retail trading clients.
During 2019, eToro UK recorded net trading revenues of $3.1 million (2018: $2.1 million), net inter-company revenue of $2.1 million (2018: $5.4 million) and a loss before tax amounting to $0.5 million (2018: profit $2.98 million). eToro UK 2019 inter-company revenues were generated from revenues received from eToro Ltd, in respect of the recharge of sales and marketing costs.
Client cash held by eToro UK fell from $5.38 million in 2018 to $4.52 million as at year-end 2019.
eToro UK was originally incorporated in 2012. It received its FCA license in 2013, and in November 2015 the company commenced trading.
eToro provides a multi-asset social investment network where clients can see, follow and copy other social investors and trade contracts for differences (CFDs) in foreign exchange, commodities, indices, exchange traded funds (ETFs), stocks and cryptoassets. Clients also have the option to purchase the underlying asset in both stocks and cryptoassets.
The company said that it connects the traditional investing world with the new world of social networks. Customers buy and sell financial products on the platform whilst exchanging information with other customers. A customer’s portfolio, risk score, and trading performance are visible to other customers on the platform. By following a financial instrument or another customer, a feed of information and trading activity is received into a customer’s own feed. By copy trading, a customer can allocate a sum of money that will be invested to copy proportionally the amount invested in either another customer’s existing portfolio or any new trades made by that customer, and automatically execute the same transaction, in proportion to the amount invested.
In October 2018, the firm commenced a trial for clients to on-board directly to the UK entity. Prior to this date clients could only migrate to the UK entity if their net equity was greater than $5,000 and they had been fully verified for know-your-client (K YC) and anti-money laundering (AML) by compliance.
Due to the successful completion of the trial to on-board clients directly into the company, this contributed to a significant increase in 2019 in customer activity in both its CFD business, real stock investment and in crypto currencies.
eToro UK stated that it executes trades with its retail and professional clients in an agency capacity, and uses an associate Company, eToro (Europe) Limited, to execute its clients’ trades, including to provide the automated execution of copy trades. eToro (Europe) Limited is incorporated in Cyprus and authorised and regulated by the Cyprus Securities and Exchange Commission (CySEC).
During 2019, the Company also executed trades in stocks and ETFs on behalf of eToro (Europe) Limited with a third party broker, trading on a matched-principal basis.
The company’s revenue is generated from client commissions earned from buying and selling CFDs and purchasing the underlying assets. Revenue is also derived from eToro group companies, in respect of execution services and the recharge of costs for marketing and account management services provided to other group entities based on a profit split analysis.
Although as noted the company has seen an increase in the number of clients in 2019, the loss attributed in the year reflects a redistribution of the Group’s overall operating profitability. In 2019 the Group’s investment in marketing activities was
significantly increased compared to 2018 which overall reduced the Group’s EBITDA in 2019. This is reflected by the
lower distribution of intercompany revenues in 2019 of $2.1m (2018: $5.4m). This investment in marketing activities in
2019 has seen a significant increase in the Companies and Group’s operating profit in 2020.
In 2019 no additional capital was required to be injected into the company. During 2018, the company’s Board of Directors approved additional capital injections amounting to USD 1,800,000 (£1,356,935) of Tier 1 equity capital through the issue of Ordinary shares to its parent Company, eToro Group Limited.