Earlier this month, Plus500 issued its H1 financial results to the market. While both top and bottom line results showed immense growth versus 2013, one alarming item in their figures was a steep increase in average user acquisition costs from $576 in Q1 to $993 in Q2.
During the same period, new customer and active trader numbers also declined. On the other hand, revenues per customer were nearly flat with Q1, even as volatility declined during the quarter, as well as other public brokers seeing reduced revenues per customer in the same period.
On the surface, the results could be indicative of Plus500’s expansion into acquiring more high-end customers. Following their IPO last year, Plus500 acknowledged that it has increased their brand awareness allowing them an easier time when marketing to more affluent regions.
However, the increased acquisition costs may have also been the result of increased competition as their success may be causing other brokers to try and imitate their marketing strategies.
After a prolonged period of telephone tag since Plus500 issued its earnings on August 13th, Forex Magnates was finally able to catch up with the firm to learn more about their operational results.
Speaking with Elad Even-Chen, VP Business Development, Head of Investor Relations & Company Secretary at Plus500, he explained that the heart of their marketing is based on search engine marketing (SEM) such as Google AdWords.
Powering their SEM spendings is proprietary software that automatically adjusts its ad bidding based on expected long-term revenue results of targeted customers. Taking into account average conversion rates of each country and keyword, the software’s algorithm bid with a goal of total acquisition costs at or below 50% of expected revenues.
Even-Chen explained that in the past, their software has been successful in finding SEM opportunities when targeting lower cost but lower expected revenue customers such as in Eastern Europe. However, with more customer data providing greater understanding of expected lifetime revenues in more affluent countries, as well as presumably their improved brand recognition which increases acquisition rates, Plus500’s marketing software is now finding marketing opportunities in more affluent regions. The result is higher expected acquisition costs, but lifetime revenues rising from around $1,500 to greater than $2,000.
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In regards to focusing a majority of their spendings on SEM, Even-Chen added that they have become one of the largest AdWords spenders in their industry within Israel. This allows them to have a good relationship with Google and provides them an opportunity for direct meetings with the search giant to discuss trends and campaign optimization.
Active and New Customer Declines – In terms of their decrease in active customers from 50,438 to 38,652, Even-Chen explained that the figure is expected to rise again as volatility increases.
In this regards, Plus500 appears to be different from other public brokers who have reported only a small decline in active traders numbers between Q1 to Q2, but whose customers are just trading less.
On this, Even-Chen explained that they are different from other brokers and their historical operating model has shown a tight correlation between volatility and active customer numbers.
In order to improve active trading figures during periods of low volatility, Even-Chen explained that they have begun to send out additional communications to customers on trading opportunities in the market, such as stock price reactions to earnings, as well as the launch of new trading products.
UK/Israel Dividend Tax Agreement – In regards to the new developments, one item that should give cheer to UK customers is a new tax ruling. As an Israeli founded company, but listed in the UK, shareholders are subject to a 25% withholding tax on dividends, of which 10% can be reclaimed.
However, some private investors have complained on UK stock forums of difficulties in the reclaiming process. At issue are shareholder stocks being held with a nominee and not in their own name, complicating the reclaiming procedure.
According to Even-Chen, a first of its kind tax ruling between the UK and Israel which has been spearheaded by Plus500 will be published in a couple of weeks, which will streamline the reclaiming of dividend funds being automatically withheld.
Among Plus500’s value propositions to investors is a dividend to shareholders of 50% of net profit. As a result, allowing for the payment to become more efficiently distributed could provide an increased appeal of Plus500’s shares among private UK investors.