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About seven years ago, I remember someone telling me that usually in business you can have a small number of clients that each generate a lot of revenue or you have a lot of clients and they each generate a small amount of revenue. It is hard to do both.
Whether or not that was as profound as I remember it being, it’s not a bad rule of thumb. For instance, the average Porsche will set you back about £100k. The average Kia is about £15,000. Kia sells a lot more cars than Porsche but Porsche makes much more per car. The same principle applies to Louis Vuitton and Uniqlo or McDonalds and a Michelin star restaurant.
I thought about this last week when looking through XTB’s latest results. We looked earlier this year at XTB and how they have managed to grow so much over the last two years. The conclusion was that they are probably using stocks and investment products to bring in more clients.
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In the third quarter, XTB onboarded 108,104 new clients. By comparison, Plus500 onboarded 24,922 clients in the same period.
However, XTB is on track to have its lowest ever average revenue per user (ARPU) in 2024. ARPU in the nine months to the end of Q3 is PLN 3,300 ($827). Unless there is a large uptick in the final three months of the year – not impossible given the election – then this will be the lowest ARPU figure the company has had since it started reporting figures in 2013.
You can see why this is the case in the company’s report. About 80% of first trades with the company were with investment products, whether that was in ETFs, shares, or some kind of investment plan.
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Those products generated PLN 2,439 in total. Revenues for CFDs were PLN 464,650. So in revenue terms, the products that were responsible for about 80% of first trades generated 0.5% of revenues. Unfortunately they don’t publish their figures but the likelihood is this is very similar to Trading 212 and eToro.
What is interesting is that Plus500, despite having futures and stock trading, is not seeing any equivalent decline in CAC or ARPU. You would expect these to come down with the addition of new products that generate less revenue. But it hasn’t happened.
The likelihood is that Plus500 are continuing to focus heavily on trading clients. For example, below is a set of Plus500 Google ads from this year:
As you can see, they are all trading-focused. Even the stock trading one is still for CFDs.
Now compare that to some recent XTB ads…
Mostly investing. eToro is the same.
Is there a right or wrong answer here? Plus500 focuses on a comparatively smaller number of higher value clients. XTB and eToro are probably getting more clients but their average value is lower. XTB is making it work. eToro is more questionable – they do not seem to have the same sort of strong margins that XTB and Trading 212 do.
What makes the money?
XTB’s report is also interesting because they show how they made their money in terms of products traded.
There are no surprises here…
Note that crypto CFDs are included in the currency CFDs category. CFDs on BTC and ETH were, XTB said, among the biggest revenue contributors in that category.
A couple of other points were interesting here. One is that among index CFDs, the DAX was among the top revenue generators – a reminder that (1) Germany is actually still a good market and (2) XTB’s efforts there are paying off.
However, the more striking point to me is how people are finding the most profitable instruments. XTB said that in indices, the US 100, US 500, and DAX were the most profitable. In commodities it was gold, natural gas, and oil. In currencies, it was BTC, ETH, and EUR/USD.
If you sign up to the XTB app then you have an automatically generated ‘favourites’ tab. It looks like this:
There is a similar dynamic on the ‘Discover’ tab…
So are these there because they are popular or are they popular because they are there? One to ask XTB.
Zlatan: the early signs are positive
XTB launched its campaign with ex-footballer Zlatan Ibrahimovic at the end of September. That has continued into this month, with an out of home campaign in Germany and YouTube ads across the company’s main markets.
The company said that from the start of the month through to the 29th of October it had onboarded more than 44,000 new clients. This is above the monthly average for the year as a whole (37,824) and may be the company’s strongest month in the year to date.
There could be other reasons for that. For example, a lot of marketing / potential volatility around the US election.
But it seems plausible doing a massive campaign with a big football player, who also has a huge social following, was another contributor. Still, it’s early days and we’ll only really be able to tell at the end of this quarter.
