Plus500 Ltd. (AIM: PLUS) whose share is traded at a $1.3 billion market cap, has reported partial results for the first quarter of the year, as allowed under UK law. This notification does not obligate the company to report its bottom line, but the market usually finds a way to figure out how the bottom line looks, based on profit margins, using previously reported complete results.
Plus500 specializes in online contracts for difference (CFD) for almost every underlying asset in the capital market, including shares, foreign currency, and commodities. The difference refers to the gap between the bid and ask prices of the asset. On this gap Plus500 charges a commission that is the main source of its revenue.
This revenue reached a new peak of $82.1 million in the first quarter of this year, compared with a forecast of "only" $69 million by the Numis investment bank, one of the two covering the company (the other is the bank that carried out Plus500's IPO). In short, Plus500 outperformed the market forecast, and its revenue reflects 35% annual growth - quite a high figure.
"The international brand name, together with the company's special technology and the volatility on the capital markets, are what have contributed to this success," says Plus500 cofounder and CEO Gal Haber. As he said, this success is reflected in the performance that lies behind the dry revenue figure.
Revenue from customers remained stable
Plus500 and similar Internet companies need as many customers as possible (and as many as possible good-quality customers, meaning customers who remain loyal to it, and carry out relatively large transactions in economic terms), at the smallest possible cost. The company thereby reduces its average user acquisition cost (AUAC) and increases its profit margins.
Plus500 recruited 33,000 new customers in the first quarter, an impressive annual increase of 63%, while its AUAC for the quarter was $892, lower than its AUAC of $921 for all of 2014, $1,120 for the fourth quarter of last year, and $1,005 in the third quarter. "That means we recruited more customers, and paid less for them. We killed two birds with one stone," Haber says. "This is mainly the result of very good and effective work by our marketing department." Plus500 cofounder Elad ben Itzhak is the marketing compliance officer.
Despite the growing number of customers, both new and active, ARPU (average revenue per user) is almost the same as in the corresponding quarter last year - $1,214. Haber asserts, however, that this revenue is higher than for other players in the market, and the fact remains that Plus500 is managing to retain high-quality customers. Its ARPU was $1,315 in the fourth quarter of 2014 and $1,290 in the third quarter.
Incidentally, we asked Haber about trading trends on the company website, in other words whether investors are more inclined to short positions than long ones, given the peak levels of the markets. He claimed that there is a balance at the moment.
More and bigger dividends
As indicated by the announcement, Plus500 is continuing to invest in the development of its mobile applications, given the fact that a major proportion of the transactions conducted through the company are on tablets and smartphones. The company's application, which is compatible with Apple and Samsung devices (Adroid), has been joined by an application based on the Windows operating system, i.e. Nokia Lumia devices. "This device accounts for about 6% of the cellular devices in Europe," Haber says.
Plus500 did not say what its bottom line in the first quarter was, but it can be estimated on the basis of the Numis forecast and past results. The company's after-tax profit last year was $102.5 million - a 45% profit margin. This means an after-tax net profit of at least $37 million in the first quarter of 2015 alone. These profit margins actually make Plus500 Israel's the most profitable Internet company (of those publicly traded, at least).
These figures enable Plus500 to go on distributing generous dividends to its shareholders. 60% of the after-tax profit was distributed (formerly 50%), amounting to $92 million last year, compared with $41 million in 2013. "The company board of directors expresses full confidence in the company's success and its meeting the market expectations for 2015 as a whole, and in its ability to carry out a policy of distributing a dividend that increases progressively," the company said in its statement.
Published by Globes [online], Israel business news - www.globes-online.com - on April 19, 2015
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