eToro shares (NASDAQ: ETOR) dropped 8.3% yesterday (Tuesday) after the Israeli trading platform reported mixed second-quarter results that beat analyst expectations but revealed concerning underlying trends.

The stock initially jumped nearly 6% in pre-market trading after the company posted adjusted earnings of 56 cents per share, topping Wall Street estimates of 50 cents. But shares quickly reversed course during regular trading hours, closing at $50.74 and testing intraday lows of $50.

What was the main reason for the decline? A nearly twofold drop in net profit compared with the previous quarter, along with management guidance that dampened investor enthusiasm.

eToro Shares Tumble 8% Despite Beating Q2 Earnings

eToro delivered impressive top-line numbers that initially caught investors' attention. Net contribution surged 26% year-over-year to $210 million, while assets under administration jumped 54% to $17.5 billion. Crypto trading generated $1.9 billion in gross revenue during the quarter, up from $1.6 billion the previous year.

But beneath these strong year-over-year comparisons lay more troubling sequential trends. Compared to the first quarter, net contribution actually fell 3%, while net income plummeted nearly 50% from $60 million to roughly $30 million. Adjusted EBITDA declined 10% from $80 million in Q1.

Chief Financial Officer Meron Shani warned analysts during the earnings call that the elevated trading activity following April's tariff-induced market volatility had "normalized throughout July." This suggested the strong momentum that drove Q2 results might not continue into the third quarter.

32% Down from IPO Day High

As a result, eToro’s share price fell more than 8% during Tuesday’s session, sliding over 32% from the $74 level reached on its Wall Street debut in mid-May. At the same time, ETOR has also broken below last month’s all-time lows, which were around $53.

By comparison, Robinhood (NASDAQ: HOOD) is trading near record highs, testing the $117.70 level on Tuesday and gaining more than 200% in 2025.

For eToro shareholders, it may be little consolation that at least some competitors have fared worse since May. For example, Poland’s XTB (WSE: XTB) has fallen 16% over the period, Germany’s NAGA (XETR: N4G) which reported preliminary H1 results today (Wednesday), is down more than 20%, and CMC Markets (LSE: CMCX) has slipped 22%.

Retail Trading Boom Loses Steam

CEO Yoni Assia highlighted how retail investors had seized opportunities during April's market turbulence, particularly in high-growth technology stocks. "We saw a lot of our retail investors jumping in to scoop opportunities with Google, Nvidia and Tesla," Assia commented during the earnings call, referring to the sharp declines that followed President Trump's tariff announcements.

But that surge appears to have faded. Trading volumes actually declined from 135 million trades in the prior-year quarter to 128 million in Q2 2025, despite the overall revenue growth. The number of funded accounts grew a modest 14% year-over-year to 3.63 million, which some investors deemed insufficient for sustaining growth.

The normalization of trading activity became apparent by July, just as Bitcoin reached all-time highs that typically would have driven increased crypto trading on eToro's platform.

Given that more than 90% of eToro’s revenue currently comes from crypto trading, this likely raised concerns among investors. And while Robinhood also saw a decline in revenue from this segment in Q2, for the U.S. fintech such revenue accounts for only about 16%, with more than 50%coming from transaction-based revenue from payment for order flow (PFOF).

High Expectations Meet Market Reality

eToro faced heightened scrutiny following its successful May IPO, which saw shares surge on their debut after pricing above the marketed range. Just one day before earnings, 15 analysts had initiated coverage with predominantly bullish ratings and price targets ranging from $70 to $85.

"Today's initial eToro excitement gave way to a touch of disappointment," Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors, commented for commented for Reuters. "Management admitted the April tariff‑shock uptick in trading activity faded by July, so the beat didn't come with a sustainably higher run‑rate."

The company has been spending heavily to capitalize on its public market debut, with marketing expenses surging over 60% as it ramps up promotional activities. This aggressive spending strategy raised questions about long-term profitability margins, even as revenues grew.

Crypto Regulatory Tailwinds Provide Hope

Despite the quarterly disappointments, eToro executives expressed optimism about longer-term cryptocurrency opportunities under the Trump administration's more crypto-friendly regulatory approach.

"Regulators all around the world are also looking at what regulators in the U.S. are doing and saying," Assia noted. "They're providing very sort of clear messaging, which is, crypto is here to stay."

The company plans to expand beyond its core retail trading roots by catering to more sophisticated users and developing AI-powered investment strategies. Founded in 2007, eToro operates a platform that allows users to invest in stocks and cryptocurrencies while copying the strategies of top-performing investors.

From its IPO day highs, eToro stock has now fallen nearly 32%, reflecting the broader challenges facing fintech companies as they transition from private growth stories to public market scrutiny.