XTB Revenues Drop 55% as ESMA Rules Weigh on CFDs Business

XTB sees a unique opportunity to gain market share as the industry consolidates and small brokers ‘disappear’.

Publicly listed Polish FX and CFDs brokerage XTB has reported its preliminary results for the first-half period ending on June 30, 2019, which showed its profits were “materially lower” than a year ago because of tighter European regulation of the speculative trading products it sells to customers.

The group has disclosed a decline across a number of different metrics during the last six months, including its revenues and net income. However, the latest report shows positive figures across its clients numbers on a year-over-year basis, per an XTB financial disclosure.

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Compared to a period of strong growth in the H1 2018, XTB has seen a pronounced retreat in its financial figures. More specifically, during the first half of this year, XTB disclosed a total operating revenue of $23.0 million (PLN 88.7 million), which was down 55 percent year-over-year from PLN 198 million in the comparable period the previous year.

Compared to the second half of 2018, this figure was almost unchanged when weighed against  PLN 90 million in the July-December period.

Clients metrics improved

In terms of its net profit, XTB posted $1.34 million (PLN 5.2 million) in H1 2019, which is sharply lower than the PLN 115 million it revealed in the same period of 2018.

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This weak performance was reversed relative to the prior six months, with the previous calendar half-year showing a profit that was ten times higher than the figure it reported in the second half of 2018 at PLN 665,000.

Coupled with this mixed performance, XTB has registered an increase in the average number of active accounts with 23,688 as of June 2019, slightly higher from 22,135 in H1 2018. New accounts were also higher, adding 16,089 during the reported period compared to only 10,046 new clients in the year prior.

The brokerage board said it expects a few changes in operational expenses in the second half though the company has also decided to maintain its marketing spending, which will eat into its profits this year as revenues decline.

ESMA’s restrictions have had a more severe impact than most CFDs brokers anticipated. Although XTB has been particularly vulnerable to this shake-up, the company sees a unique opportunity to gain market share, with the new regulation from Esma creating a more level playing field for competition.

The company further explains that “A natural consequence of ESMA’s decision should be a wave of consolidation on the market allowing X-Trade Brokers to consolidate its strong position on the European market”

“Small brokers, unable to withstand regulatory pressure and strong competition from larger brokers, will naturally disappear from the market. As a consequence, large brokers are expected to have a growing client base,” XTB said in its earnings report.

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