We’re back with a much delayed podcast. This time we have David Belle, Founder of Macrodesiac, consultant to brokers and former jack of all trades at TradingView.
Listeners may want to skip the first 8 minutes, in which I talk about intro music and also rant about unbalanced coverage of the UK economy and stock market. After that we talk about how brokers can do a better job at connecting content, marketing and sales teams. We also speak a bit about adding options / futures trading and new regulations in the UK.
You can listen via the links below:
XM makes bank
Last week we looked at XM and how their adverts are everywhere in several countries in Southeast Asia. As noted, whenever you hang out with someone that is particularly active in that part of the world, it will get to a point in the evening where they start going “bro you don’t understand, XM are doing like 500 yards a month in Japan”. And you nod along and act like it’s the first time you’ve heard this information.
But having seen first hand how many ads they have there, this got me wondering – maybe these people are right to be so obsessed? XM is not a publicly traded company, so the information is not easy to come by, but you can access their accounts (kind of).
The company’s accounts for 2022 are not available but according to company filings in Cyprus, Trading Point Holdings (TPH), XM’s parent company, made €325.96m in pre-tax profit in 2021. The prior year was even better. According to filings for that year, the XM group made €554.58m in pre-tax profit in 2020, probably as a result of pandemic-induced volatility.
When I first looked at these numbers briefly on the tube earlier in the week, I glanced over them and thought “wow that’s a lot” and then didn’t look at it again until just now. But actually, assuming these numbers are accurate, that is an insane amount of money. It is more than any of the other major players made in 2020, and by a wide margin. In fact, IG’s pre-tax profit for its last financial year is the only time that any provider, that I’m aware of, has made a higher pre-tax profit than the amount XM made in 2020.
Unfortunately, the way the filings are set up make it difficult to determine how much the company made in sales. TPH is a holding company and its ‘revenue’ appears to predominantly be dividends paid to it via other group entities. Some of these entities are based in places like Belize and the Seychelles, making their accounts harder to access.
You can see the financials for the company’s European entity easily though. As you can see below, this entity makes a comparatively small amount of money for the group and was even loss-making last year. Presumably this is because the company makes most of its money via those offshore entities.
ThinkMarkets is adding options (if it survives)
Last week ThinkMarkets announced it would be going public via a SPAC merger. That eToro and Saxo Bank both ended up failing to go public via SPAC mergers indicates this is not a done deal. ThinkMarkets is not profitable and I would not be surprised if a lot of shareholders redeem their shares.
Assuming that happens, the SPAC managers are going to have to go and raise more cash, which is going to be tough in the current environment. It will be interesting to see what happens then as ThinkMarkets’ accounts suggest it has rinsed its lending facility and is almost out of cash. The SPAC transaction falling through will mean it has to go and raise more money from somewhere.
But let’s ignore all of that and pretend everything is fine for one second, because the prospectus does contain some interesting information. For one thing, the company has said it plans on launching operations in Canada, Singapore and Dubai. More interesting is the launch of exchange-traded products, namely cash equities and, in the US, futures and options.
Both listed derivatives and cash equities are topics I’ve written about a few times here before. One of the points eToro’s UK MD Dan Mosculski made when I interviewed him recently was that this has tended to be a feature of brokers with their own tech, as opposed to brokers using a white label. Brokers with their own tech can broaden their reach with more products, whereas white label users really only have the option of expanding by entering new markets.
Anyway, ThinkMarkets has said in its prospectus that, beyond expanding into new markets, it plans to launch cash equities, options, and futures trading for clients in the US. Given that the company isn’t actually regulated there, its implicit that they’ll also be getting regulated in the US.
Assuming this happens, it would mean there has been something of a ‘re-entry’ to the US since the Swiss Franc debacle in 2015. eToro has been active in the US for a couple of years now, IG Group has expanded massively in the US since its acquisition of tastytrade, XM has an entity there for FX trading, and Plus500 seems on the cusp of marketing its futures trading service there heavily.
Should Revolut become a CFD provider?
Revolut has appeared in the hallowed pages of CFDs Weekly a couple of times before, mainly to talk about how they fluff numbers to improve their valuation and how they aren’t worth anywhere near the amount they claim to be. Sadly, when you write about these points, the typical response tech people have is to imply that you are some sort of Luddite that doesn’t ‘believe’ in tech.
Having studied this phenomenon for some time, I believe it may be the result of a strange brain virus (I call it ‘cranial technitis’) that results in the victim having massive hubris, an inability to engage in basic financial analysis (“man you just need to think about it more – a $100bn valuation with £10m in revenue and a £100m loss makes total sense”) and totally distorted view as to how impactful tech actually is. Generally the only way this terrible disease can be cured is via central banks hiking interest rates, although the side effects of this treatment can be severe and many don’t survive.
This is a shame because a lot of the time the companies that people with cranial technitis work for make excellent products. Revolut is a good example of this. I use the app and it’s great for making payments and managing money. When you travel abroad it’s extremely useful to have because the FX fees are low. You also have other cool features like disposable cards (good for trial sign ups), automated payments and cheaper car insurance. Using HSBC for the first time recently also made me aware of how bad older banks can be – at one point I was genuinely asked if I wanted to fax a document to the branch I was using.
Revolut has been in the news over the past month because there is a good chance its banking licence application is going to be rejected. This is going to be used as an example of how the UK is anti-business. The frustrating thing is, the UK is quite anti-business and could do a lot more to encourage risk taking.
But Revolut should not get a banking licence and this is not an example of regulators or the UK being ‘anti tech’ (why issue Monzo and Starling licences, if that was the case?) Not only were Revolut’s 2021 accounts massively late (publicly traded firms have already released their 2022 results), but a huge chunk of their revenue was unaccounted for, with their auditor unwilling to sign it off. And then about a third of revenue purportedly came from crypto (so presumably they have seen a massive fall in revenue as a result). Loads of people in compliance and finance functions have left the company, having barely spent any time there at all. These are basic things that you should be getting right, not signs that you deserve a banking licence.
Then I think about things from a customer’s point of view. How would you feel if your bank was sending you notifications trying to get you to punt on bitcoin? And then to top it off, you see the spreads on this extremely speculative, unregulated product are absolutely insane and the company (at least until relatively recently) was b-booking all your trades?
This would not be a company I would want to keep my life savings with. But it would be a company many peeps out there would punt on CFDs with. I say this only half facetiously. It’s not going to happen because it would taker major balls to do it, but Revolut should consider giving up being a bank and switch to being a money management / investing application.
If you look at the services it offers today, it is effectively all of the things that CFD providers are trying to move into. You have payments, FX conversions, money management, commission-free stocks, debit cards and – last and definitely least – cryptocurrencies. Swissquote’s Yuh app is probably the most developed example of this in the CFD space, as they have either added these features or say they are in the process of doing so.
So Revolut could just stop trying to take over the world, chill out on the whole ‘we’re a bank’ thing and try to realise what its true calling is – letting retail clients punt on speculative products while managing their short-term finances at the same time.