Plus500 revenues slump amid 'extremely subdued' markets

Online trading platform Plus500 posted a drop in first-quarter revenue amid "extremely subdued" financial markets, with the number of active customers and average revenue per user both down amid low levels of volatility.

In the three months to the end of March 2019, revenue slumped 65% from the fourth quarter of 2018 to $53.9m, while the number of active customers dipped 4% to 97,921 and ARPU fell 64% to $550.

On the bright side, however, the number of new customers rose 10% from the previous quarter to 21,306.

In addition, the group said revenue from outside the EEA region had risen to 54% of group revenue from 40% in the final quarter of last year. During the period, 49% of EEA revenues came from Elective Professional Clients, in line with the previous quarter.

Chief executive officer Asaf Elimelech said: "Given the level of global political and economic news, financial markets were surprisingly subdued in the period, which reduced the number of trading opportunities for customers. While revenue in the quarter was disappointing, we have much to be encouraged about. Plus500 continued to lead the industry in new customer acquisition, both in absolute numbers and in the efficiency of the marketing spend.

"Given recent regulatory changes, it is imperative to attract, engage and retain valuable customers and the company is working on a number of initiatives to extend its reach and further improve the customer experience and the service offered."

At 0830 BST, the shares were down 34% at 476p.

Broker Peel Hunt said first-quarter revenue is running significantly below its FY19 run-rate of $117m.

"Currently, Plus500 is a predominantly digital marketing business that relies on successive retail client acquisition to justify its model. Its model is highly cash-generative with no costs from hedging. Concerns remain in the longer-term sustainability of the business (with regulators increasing consumer protections); however, in our view Plus has sufficient time to evolve its marketing model towards the regulatory landscape, albeit long-term profit margins decline."

Peel Hunt said it remains "a stock for the brave" given the share price volatility in response to sector earnings uncertainty (as highlighted in today’s update)." The broker maintained its 'add' rating but cut the target price to 1,050p from 1,300p.

Canaccord Genuity said Q1 revenue was 43% below its run-rate expectations for the quarter of $94.5m.

"While we are conscious that this represents just the first quarter of Plus500's fiscal year, excepting a major reversal in current volatility trends, client behaviour or achieving material P&L gains, our current FY19 revenue forecast of $377.8m appears unachievable.

"We believe material downward revisions to consensus revenue for FY19, which is currently $445.8m per Bloomberg (18% ahead of our forecast), must follow."

Berenberg downgraded its stance on Plus500 shares after the update.

"Given the lack of visibility of revenues and signs that regulators will continue to target the sector, we downgrade Plus500 to 'hold'' until there is further clarity on what sustainable performance looks like," it said. It previously rated the stock at 'buy'.

"Unfortunately, while conditions could improve and extrapolating from a single quarter is dangerous, visibility is low and market losses are large. It is also difficult to separate the impact of markets and the regulatory restrictions on retail client trading," it added.