Plus500’s Rising Acquisition Costs Hamper H2 2014 Net Profits
- Taking a closer look at Plus500's financial report reveals that the broker experienced a decline in H2 2014 profits compared to H1 due to rising marketing costs to acquire new customers.
Plus500 reported its full year and quarterly financials today, announcing record profits and revenues during 2014, $102.5 million and $228.9 million respectively. For Q4 2014, the broker also achieved record quarterly revenues of $66.5 million, surpassing their previous high of $60.7 million achieved in Q1 2014 (see chart below). The top line growth has so far powered shares of Plus500 (PLUS.L) up around 4% to 608p this morning.
While the year-over-year figures continue to show strong growth, a deeper look into Plus500’s 2014 numbers reveal that the broker is beginning to experience a tougher time expanding its business. Specifically, after achieving very low acquisition costs below $1,000 a user for all of 2013, per customer expenses (AUAC) have risen steadily during the last three quarters of 2014. At the same time, average revenue per user (ARPU) hasn't grown at the same levels after initially spiking higher at the end of 2013 (see chart).
This phenomenon was first highlighted following the release of their H1 2014 financial statement. At the time, broker representatives explained to Forex Magnates that Plus500 had begun to tweak its automated marketing channel which uses search advertising to focus on higher revenue producing clients. The tradeoff though is higher expenses to capture this clientle. However, according to Plus500, despite the client type, the firm’s automated bidding approach to search marketing was expected to continue to users whose acquisition cost is 50% or below their forecasted lifetime revenue value.
Analyzing quarterly and half year data, the initial results illustrate that the change in marketing is causing several items to take place. Firstly, acquisition costs have risen compared to 2013. This in turn has driven down new customer acquisition levels, which peaked in Q1 2014 (see chart) but have since begun to rebound. However, the higher end clients are in fact proving to be higher revenue generators with Q4 2014 achieving the abovementioned record.
Nonetheless, where acquisition costs growth is having its greatest impact is on Plus500’s bottom line. As seen in the chart below, despite higher revenues for H2 2014, profits have declined when compared to H1, from $53.8 million to $48.7 million (see chart). This was the case, even as H2 included the September to December period which saw a return of Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term, compared to the record low levels of inactivity in the currency markets during Q2 2014. It is worth noting that Plus500 considers itself a CFD-focused broker and is less aligned to currency volatility than other online brokers in the sector. However, non-FX products also experienced a rise in movement during H2 2014, with stock indexes reaching yearly highs and crude oil falling.
So does the margin decline mean Plus500’s stellar growth is set to expire? It’s too early just yet to make that prediction. What we do know is that the broker does need to prove that it can achieve higher revenues per user to justify the costs of acquisition. It is worth noting that company representatives did explain to Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term Magnates that ARPU and AUAC aren’t an apple to apple comparison. While acquisition costs per user are itemized for the quarter the customer was onboarded, their revenues can be calculated over multiple quarters of trading. Therefore, even as Plus500 accelerated its marketing costs in H2 2014, revenues from those users would be expected to be experienced during 2015. As such, looking ahead, it will be important to watch whether the more premium clients which Plus500 is courting are in fact found to be higher quality and longer term traders. This will be seen in Q1 and Q2 2015’s report when the broker reports active customer figures, and whether they are managing to retain their customers for longer durations.
Plus500 reported its full year and quarterly financials today, announcing record profits and revenues during 2014, $102.5 million and $228.9 million respectively. For Q4 2014, the broker also achieved record quarterly revenues of $66.5 million, surpassing their previous high of $60.7 million achieved in Q1 2014 (see chart below). The top line growth has so far powered shares of Plus500 (PLUS.L) up around 4% to 608p this morning.
While the year-over-year figures continue to show strong growth, a deeper look into Plus500’s 2014 numbers reveal that the broker is beginning to experience a tougher time expanding its business. Specifically, after achieving very low acquisition costs below $1,000 a user for all of 2013, per customer expenses (AUAC) have risen steadily during the last three quarters of 2014. At the same time, average revenue per user (ARPU) hasn't grown at the same levels after initially spiking higher at the end of 2013 (see chart).
This phenomenon was first highlighted following the release of their H1 2014 financial statement. At the time, broker representatives explained to Forex Magnates that Plus500 had begun to tweak its automated marketing channel which uses search advertising to focus on higher revenue producing clients. The tradeoff though is higher expenses to capture this clientle. However, according to Plus500, despite the client type, the firm’s automated bidding approach to search marketing was expected to continue to users whose acquisition cost is 50% or below their forecasted lifetime revenue value.
Analyzing quarterly and half year data, the initial results illustrate that the change in marketing is causing several items to take place. Firstly, acquisition costs have risen compared to 2013. This in turn has driven down new customer acquisition levels, which peaked in Q1 2014 (see chart) but have since begun to rebound. However, the higher end clients are in fact proving to be higher revenue generators with Q4 2014 achieving the abovementioned record.
Nonetheless, where acquisition costs growth is having its greatest impact is on Plus500’s bottom line. As seen in the chart below, despite higher revenues for H2 2014, profits have declined when compared to H1, from $53.8 million to $48.7 million (see chart). This was the case, even as H2 included the September to December period which saw a return of Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term, compared to the record low levels of inactivity in the currency markets during Q2 2014. It is worth noting that Plus500 considers itself a CFD-focused broker and is less aligned to currency volatility than other online brokers in the sector. However, non-FX products also experienced a rise in movement during H2 2014, with stock indexes reaching yearly highs and crude oil falling.
So does the margin decline mean Plus500’s stellar growth is set to expire? It’s too early just yet to make that prediction. What we do know is that the broker does need to prove that it can achieve higher revenues per user to justify the costs of acquisition. It is worth noting that company representatives did explain to Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term Magnates that ARPU and AUAC aren’t an apple to apple comparison. While acquisition costs per user are itemized for the quarter the customer was onboarded, their revenues can be calculated over multiple quarters of trading. Therefore, even as Plus500 accelerated its marketing costs in H2 2014, revenues from those users would be expected to be experienced during 2015. As such, looking ahead, it will be important to watch whether the more premium clients which Plus500 is courting are in fact found to be higher quality and longer term traders. This will be seen in Q1 and Q2 2015’s report when the broker reports active customer figures, and whether they are managing to retain their customers for longer durations.