- This topic has 3 replies, 4 voices, and was last updated 1 month ago by Jackson Wong.
There was a time when eToro had everything going for it – riding the crypto and personal investing wave through COVID, international expansion and being plastered all over social media. But since it’s IPO performance has been dire, and now reports of layoffs in Israel. Why has the share price done so badly, considering the performance of brands like Robinhood, Plus500 and IG. Is it overhype and an overvalued IPO, or a more fundamental problem? Would you short eToro?
eToro shares have not performed well since the IPO. As I write this, they’re trading at $31 – about 40% below the IPO price of $52.
It’s hard to know exactly why the share price has tanked. I think it’s probably related to a few different factors including:
* Competition: eToro operates in a very competitive industry and it’s up against some very powerful players. Earlier this month, analysts at Goldman Sachs downgraded the stock to ‘neutral’ on the back of competition concerns.
* Robinhood: Rival Robinhood is having a great deal of success right now. I feel like there’s a view in the market that this company is going to be the long-term winner with younger investors. Note that Robinhood has been expanding into Europe recently (eToro’s main market).
* Prediction markets: Prediction markets have taken off recently. eToro doesn’t offer this yet (it’s planning to launch this feature later in 2026).
* Crypto weakness: eToro is a major crypto trading platform. And crypto has been weak recently – Bitcoin is well off its highs. It’s worth noting that interest in Bitcoin has been declining. It seems young investors are focusing on other areas of the financial markets right now (e.g. prediction markets).
* Profitability: eToro’s profit margins are well below the industry average.
Personally, I wouldn’t short the stock. Because the valuation is quite low now. According to Stockopedia, analysts are looking for earnings per share of $2.69 this year. That puts the stock on a forward-looking P/E ratio of just 11.5. I don’t see a lot of downside at that valuation. But I could be wrong.
I think there are a number of reasons for the underperformance of eToro’s stock since it IPO’d.
However, it seems to me that the main factors behind the share price fall are geographic and cultural differences.
I say that because, unlike rivals such as Robinhood eToro’s clients base is international rather than US focused. Ss of the end of 2024 just 10.0% of eToro’s clients were in the US. What’s more retail OTC trading, which still makes up a large portion of eToro’s turnover is somewhat alien to US investors, not least because over-the-counter trading in the US is off limits to most retail clients.
A downturn in the crypto markets, which kicked off in August last year can also be blamed. It’s my understanding that crypto trading is a higher margin business for the firm so a prolonged downturn, in a largely sentiment driven asset class, would likely dent the firms revenues. And that could be a factor behind the recent news of headcount reduction.
For eToro to shine I think it will need to demonstrate that it’s growing its US business, and show that it can profitably participate in on exchange trading, particularly in growth areas like OTDE options.
Many good points by Ed and Darren above.
I just add another point. Many of these newly-listed brokers tend to go through a ‘Boom-Bust’ cycle, where prices slump by 80-90 percent following their IPOs.
For example:
Coinbase (COIN) – $400 to $40 (-90%)
Robinhood (HOOD) – $80 to $8 (-90%)
WeBull (BULL) – $70 to $8 (-89%)
et cetera.
eToro (TOR) is no different. Its share trend is just following the script of these financial stocks.
Perhaps investors are waiting to see if these stocks can survive a severe bear market before investing for the long term.
Who knows, the next bull market may result in a sharp price appreciation if ‘things work out’ for the broker. From their 2022/23 lows, COIN rose 10x while HOOD rallied 15x.
I would keep an eye on the stock and see if their fundamentals (revenue, margin, profits etc) are worthing buying for the long term.
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