Shares of a popular Israeli trading platform experienced an 8.3% drop after the company reported mixed second-quarter results. While it exceeded analyst expectations, underlying trends raised concerns.
Initially, shares surged almost 6% in pre-market trading following the announcement of adjusted earnings of 56 cents per share, surpassing the anticipated 50 cents. However, this momentum did not hold, as trading for the day closed at $50.74, marking intraday lows around $50.
The notable cause for the decline was a significant drop in net profit compared to the prior quarter. Additionally, management’s guidance, which was less optimistic, contributed to the negative sentiment among investors.
The trading platform reported strong year-over-year results, revealing a 26% increase in net contribution to $210 million and a 54% rise in assets under administration to $17.5 billion. Furthermore, crypto trading proved fruitful, generating $1.9 billion in gross revenue for the quarter, compared to $1.6 billion the previous year.
Despite these impressive figures, the sequential trends were less encouraging. Net contribution actually fell by 3% when compared to the first quarter, and net income nearly halved from $60 million to around $30 million. Adjusted EBITDA decreased by 10%, dropping from $80 million in Q1.
The Chief Financial Officer issued a warning during the earnings call about diminishing trading activity that had benefitted the company in previous months. After a period of heightened trading activity triggered by market volatility, a return to normalization was observed by July, leading analysts to question the sustainability of the performance.
This decline resulted in the company’s share price falling below $74, the level reached during its Wall Street debut in mid-May, resulting in a loss of over 32%. The stock even dipped below last month’s all-time lows of around $53.
In contrast, a competing trading platform was seeing a surge in share prices, nearing record highs at the $117.70 mark and enjoying over 200% growth in the year. Even though some competitors fared worse since May, it provided little comfort to shareholders, as several firms experienced declines in their stock prices.
The retail trading boom previously observed seems to be waning. CEO Yoni Assia commented on how retail investors capitalized on opportunities during April’s market turmoil, particularly in technology stocks. However, trading volumes decreased from 135 million trades a year earlier to 128 million in Q2, and the growth in funded accounts was only modest at 14%, raising doubts about ongoing growth potential.
The normalization of trading activity became evident in July, coinciding with Bitcoin reaching record highs that usually would have encouraged more trading on the platform. Since crypto trading comprises over 90% of the company’s revenue, this raised alarm for investors.
In addition to losing momentum in crypto revenue, the company faced scrutiny after its successful IPO in May, where shares initially rose sharply. Analysts had high expectations, with many issuing overly optimistic ratings and price targets shortly before the earnings report.
Following the disappointing earnings, it was noted that aggressive spending to enhance visibility in the public market raised concerns about long-term profitability. Many viewed the significant increase in marketing expenses as a potential drain on future margins, despite revenue growth.
However, the management expressed optimism regarding the potential for cryptocurrency under a more favorable regulatory environment. The sentiment suggested that as regulators in different countries look to the U.S. for guidance, a favorable long-term outlook for the crypto market may still be possible.
The company aims to broaden its appeal beyond retail trading by targeting more sophisticated users and employing artificial intelligence (AI) in investment strategies. Despite the challenges faced since the IPO, the platform is determined to adapt and seize future opportunities within the evolving financial landscape, reflecting broader issues that fintech companies grapple with as they shift from private growth to public market expectations.