While some parts of the industry are looking to less-regulated jurisdictions, others are actively looking to get more regulated. One example is Israeli publicly-listed company Plus500, which appears to be aiming high with a Japanese license.
The company is exploring more options to get regulated business worldwide, the firm’s management shared during today’s earnings call. The news prompted a spike higher in the value of the company as it looks to one of the toughest regulated markets in the world.
The Japanese securities regulator is notoriously strict and applied a 25:1 leverage cap on forex trading quite some time ago.
Rising User Acquisition Costs
Plus500’s shares are trading higher over 7% on the news and on today’s earnings. The company published a relatively upbeat report, highlighting in its outlook that it expects a mitigated impact from ESMA’s new regulations.
The most notable components in the earnings report are related to average user acquisition costs (AUAC) and the average revenue per user (ARPU). The metrics sharply contrast with a year ago. The AUAC figure stood higher by 129% when compared to a year ago at $1,581. The data for the three months that ended on the 30th of September 2018.
During the same period, the ARPU metric dropped by 20%, leading to compressed margins for Plus500.
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Clients Growth Slows Down
Just as the average revenue per client is dropping, another key metric has ticked lower. The growth in the number of new clients appears to have slowed. The metric totaled 20,684 new customers for the three months ending September 30th.
This metric was 42,492 last year. It is worth noting however that the cryptocurrency boom was already in place in September 2017. As such, the year-on-year comparison of this metric could be less accurate than desired.
Overall, the seasonal impacts resulting from the new ESMA regulations led to a 14% decline in revenue, to $100 million. That said, the number of active clients increased by 8 percent to 102,043.
Low Market Volatility
Plus500 also highlighted the sharp decline in volatility when compared to last year. There have been no notable movers in the third quarter and no underlying markets theme. October is looking upbeat in this respect as the stock market appears to be heading for a long-awaited correction.
Brexit and Italy are also shaking things up on the FX front and the US dollar appears to be regaining its shine into the mid-term elections. Plus500 highlighted that it is seeing increased levels of activity in October and expects more in the coming months.
The cyclical nature of volatility is a key characteristic of the financial market, as brokers know very well. Periods of low volatility are usually followed by periods of high volatility and increased interest in trading.