XTB sees slowdown in Q4-2022, Revenues -45% Profits -79%
Poland based online broker XTB SA (WSE:XTB) has reported its financial results for Q4 and full-year 2022, indicating a significant slowdown in activity during the last quarter of the year.
However overall, XTB had its most successful and profitable year ever in 2022.
As far as Q4 goes, XTB is reporting top-line Revenues (or what it terms Total Operating Income) of PLN 216.7 million (USD $49 million) in Q4-2022, down by 45% from Q3’s PLN 391.3 million making Q4 XTB’s slowest quarter of the year. Net profit fell from PLN 236.2 million in Q3 to PLN 50.0 million ($11 million) in Q4.
However overall, as noted above 2022 was XTB’s best year ever with the company reporting annual Revenue of PLN 1,444 million ($328 million) and Net Profit of PLN 765 million ($174 million).
Monthly client CFD trading volume at XTB averaged $183 billion in Q4-2022, and $188 billion for the full year 2022.
XTB management said that the year 2022 was a further period of dynamic business development and building a client base for XTB. High volatility in the financial and commodity markets as well as the environment of negative real interest rates have made trading on financial instruments very attractive for many investors. As a result, the Group acquired a record 196.9 thousand new clients and the number of active clients increased by 35.9% y/y from 190.5 thousand to 258.8 thousand. This translated into a significant increase in the volume of clients’ trading on CFD instruments expressed in lots – an increase from 4.1 million to 6.4 million lots, i.e. by 55.1% y/y.
In the fourth quarter of 2022, which was characterized by noticeably lower volatility in the financial and commodity markets compared to the preceding quarters, especially in terms of the occurrence of long and clear trends, Revenues increased by 18.1% y/y, i.e. PLN 33.2 million from PLN 183.6 million to PLN 216.7 million. This change was influenced by: (i) lower per-lot profitability – a decrease by PLN 45 (from PLN 171 to PLN 126); (ii) higher clients turnover in financial instruments expressed in the number of transactions concluded in lots– increase by 646.8 thousand lots (from 1 073.5 thousand to 1 720.4 thousand lots).
The company said that the priority of the Management Board is to further increase the client base leading to the strengthening of XTB’s market position in the world by reaching the mass client with its product offer. These activities are and will be supported by a number of initiatives, including the introduction of new products or promotional campaigns. The ambition of the Management Board in 2023 is to acquire, on average, at least 40-60 thousand new clients quarterly. In January 2023, the Group acquired a total of 42.3 thousand new clients. For example, on January 9, 2023, XTB launched a new promotion “Free share for a good start” consisting in receiving a free share worth up to USD 30 for opening an account with XTB and making a deposit of any amount.
Revenues by Asset Class
Looking at XTB’s revenues in terms of the classes of instruments responsible for their creation, it can be seen that in 2022 CFDs based on index were in the lead. Their share in the structure of revenues on financial instruments reached 46.4% compared to 32.8% a year earlier. This is a consequence of high profitability on CFD instruments based on the US 100 index, the German DAX index (DE30) or the US 500 index. The second most profitable asset class was CFD based on commodities. Their share in the revenue structure in 2022 was 33.8% (2021: 49.3%). This is a consequence of high profitability on CFD instruments based on quotations of natural gas, gold and oil prices. Revenues on CFDs based on currencies accounted for 17.0% of all revenues, compared to 12.5% a year earlier, where the most profitable financial instruments in this class were CFD based on currency pairs EURUSD and GBPUSD.
The business model used by XTB combines the features of the agency model and the market maker model, in which the Company is a party to transactions concluded and initiated by clients. XTB does not engage, in the strict sense, in transactions carried out on its own account in anticipation of changes in prices or values of underlying instruments – proprietary trading.
The hybrid business model used by XTB also uses the agency model. For example, on most CFD instruments based on cryptocurrencies, XTB secures these transactions with external partners, practically is no to be the other party to the transaction (of course, from a legal point of view, it is still XTB). The fully automated risk management process adopted by the Company limits exposure to market changes and forces the Group to hedge its positions in order to maintain appropriate levels of capital requirements. Additionally, XTB realize directly on regulated markets or in alternative trading systems, all transactions on shares and ETFs as well as on CFD instruments based on these assets. XTB is not a market maker for this class of instruments.
The Group’s operating incomes is generated from: (i) spreads (the differences between the “offer” price and the “bid” price); (ii) fees and commissions charged by the Group to its clients; (iii) swap points charged (being the amounts resulting from the difference between the notional forward rate and the spot rate of a given financial instrument); and (iv) net results (gains offset by losses) from Group’s market making activities. The table below presents percentage share of income categories in gross gain on transactions in financial instruments.
XTB with its strong market position and dynamically growing client base builds its presence in the non-European markets, consequently implementing a strategy on building a global brand. The XTB Management Board puts the main emphasis on organic development, on the one hand increasing the penetration of European markets, on the other hand successively building its presence in Latin America, Asia and Africa. Following these activities, the composition of the capital group may by expanded by new subsidiaries. It is worth mentioning that geographic expansion is a process carried out by XTB on a continuous basis, the effects of which are spread over time. Therefore, one should not expect sudden, abrupt changes in the group results on this action.
The development of XTB is also possible through mergers and acquisitions, especially with entities that would allow the Group to achieve geographic synergy (complementary markets). Such transactions will be carried out, only when they will bring measurable benefits for the Company and its shareholders.
Currently, the Management Board’s efforts are focused on reaching mass clients with the offer. This is crucial for further products added to the offer in 2023 and in the consecutive years. The Management Board estimates that the effects of these works will give a much higher output than if the available resources were invested in launching operations in South Africa. For this reason, the start of operations of XTB Africa (PTY) Ltd. has been postponed at least until 2024.
More summary financial and operating info for XTB in 2022 follows.