That sucking sound your hearing this morning might be the air coming out of the forex boom.Citigroup just slashed its price target on FXCM — a leading player in retail forex — from $14 to $4 $18 to $14 thanks to weak trading metrics.
Here are the three points made by Citi’s William Katz:
- Retail trading volume of $258B fully 12% below our prior forecast (Figure 2). The miss reflects fewer accounts, as average volume per trade of ~$40K met forecast. Unfortunately, the retail trading volume is the key revenue generator for FXCM, or about ~90% of the top line. We believe the root issue reflects reduced FX volatility + lower account leverage, the latter unlikely to improve following recent regulatory drop from 100:1 to 50:1 standards;
- Account growth at 1/31 well below forecast. 174K accounts at 1/31 well below our 183K forecast. In fairness, management did restate, though without ample reason, 12/31 accounts down by ~5,000 from an originally reported 180K to 175k while shuttering 3,221 accounts in January that went dormant – effective February, the firm will charge clients an inactivity fee. Netting these factors, account growth inched up 1% MTM, but fell below our forecast.
- Average daily trading of 307,689 improved 11% MTM from a seasonally soft December but fell a disappointing 7% Y/Y. The fewer accounts are clearly taking a toll on comparisons, and fell 12% below our forecast.
At the same time, there’s also a big class-action lawsuit against the compmy from traders who think they got ripped off.