Shares in Plus500, an Israeli company that lets people effectively bet on stocks and commodities, are tanking.
The company put out its third quarter update on Monday and it suggests Plus500 is struggling to attract high-value customers to the site.
The number of new customers on the website jumped by 47% in the quarter, but the average revenue spent per customer tanked 28% to $1,107 and total revenue in the 3 months to September 30 fell by 4%.
Plus500, which is a shirt sponsor of Spanish football giant Atletico Madrid, claims in the release that it is “focused on adding high-value customers” and says the decline in average revenue per user is “due to a combination of a continuing increase in active and new customers (as new customers do not contribute significant revenue in the quarter they are recruited in) and a slight decrease in customer churn which is consistent with the previous quarter.”
It’s likely, although Plus500 doesn’t say, that customers don’t show significant revenue in the quarter they sign up because the platform brings them in with loss-leading offers. Trouble is this means you can’t tell if they’re high-value or not — just have to take Plus500’s word for it.
Investors don’t seem convinced — shares are down over 6% in London just before lunchtime (note times on the below graph are New York):
Plus500 lets people trade risky, leveraged financial instruments called contract for differences (CFDs). CFDs are essentially bets on whether a share price, currency, or commodity price go up or down. The punter making the bet wins or loses in increments depending on how close or far the asset is to the price predicted.
Plus500 was told last year by the UK’s Financial Conduct Authority (FCA) to freeze all UK customer accounts and stop on-boarding new clients to its UK business (it also operates in Cyprus, Australia, and Israel) until it fixed its anti-money laundering checks. New clients began on-boarding to the UK business only last month.
Subsequent investigations by BI revealed that the FCA was likely tipped off by rival CFD brokers who distrusted Plus500’s technology-heavy approach to onboarding and regulation. The company used Facebook and Instagram marketing unlike rivals, for instance. This led to new customers being attracted to the market but typically meant they were also less well off than traditional customers. A source I spoke to for an article last year accused Plus500 of “dumbing down” marketing to attract people to a complex and risky financial product.
Management has changed at Plus500 since the FCA scandal and the new management are trying to focus on higher-value customers to repair relations with investors and the regulator. However, the share price is still well below its pre-crisis peak, despite a share consolidation.
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