Marketing costs slow profit growth at Plus500

Marketing costs slow profit growth at Plus500

Monday, September 5, 2016 Posted by Andy McCarron
The financial trading operator encounters onboarding hurdles

The cost of higher maketing spend, following on from the institution of tighter onboarding procedures in the wake of regulatory investigations last year, has put the brake on UK-listed financial trading house Plus500’s operating profits even as the company continues to enjoy near double-digit growth in new customers.

The Israeli-based company came under scrutiny from both the UK Financial Conduct Authority (FCA) and Cyprus’ Securities and Exchange Commission (CySec) in 2015 when the financial watchdogs became concerned over Plus500's AML measures.

Having overhauled its own internal controls, Plus500 saw its EBITDA growth slow to 6% a year as increase marketing spend took its toll on profit margins and average revenue per customer levels. ARPU for the first half came in at $1,525, a recovery from its low in the first half of last year of $1,362 but still substantially below the 2014 level of over $2,000.

The level of marketing spend increased substantially as Plus500 attempted to recover momentum in new customers. The company estimates it will spend circa $150m in 2016 across both online and offline marketing, up from just over $100m in 2015 and $60m in 2014. This includes the spending on the high-profile shirt sponsorship at Atletico Madrid.

The influx of new customers is vital to financial trading companies due to historically high levels of customer churn and Plus500 is no different. Over 50% of all revenues come from customers that have been with Plus500 for less than six months and a further 15% comes from customers that have been on the books for less than one year. Only 19% derives from customers with a trading history of between one and three years and another 15% have histories longer than that.

New customer numbers rose 9% year-on-year to 56,929 while actives were up 12% to 104,119.

The company said the shock decision by the UK to vote for Brexit in June had acted as a marketing spur, with many customers who were not active prior to the Referendum reactivating their accounts and using the platform during the period due to the prolonged market volatility.

In the six months to June, revenues rose 25% to $158.8m while EBITDA rose to $51.9m from $55.5m. pre-tax profits rose to $44.5m.

Commenting on the results, chief executive Asaf Elimelech said the company was pleased with its progress since its regulatory run-ins. "Plus500 achieved record first half results whilst continuing to grow both its active and new customers,” he said. “This performance was driven by continued marketing activity and market volatility; the UK's Brexit decision boosted customer activity late in the second quarter, leading to increased new customer sign-ups, customer re-activations, and higher customer trading levels.”

The rather muted comments with regard to profitability at Plus500 echoed those of Playtech which reported last week its first-half figures from its financial division, acquired in May 2015. Playtech said its business had performed well enough against a developing regulatory backdrop of tighter restrictions and controls imposed on brokers. Playtech threw in the towel on its attempted £460m takeover of Plus500 in November last year. The admittedly opportunistic bid occurred at the height of Plus500’s regulatory entanglements.

Totally Gaming says: The financial watchdogs in the UK and Cyprus will likely be gratified to see that their combined actions with regard to client onboarding techniques have had a stifling effect on operating profits at the financial trading operators. As for the operators, the growth in revenues and new customer levels will be gratifying, though clearly it comes at the expense of greater marketing spend.

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