July 2, 2019 / 6:15 AM / 17 days ago

Plus500 revenues pick up as platform adjusts to tougher betting rules

(Reuters) - Online trading platform Plus500 said its revenue picked up in the second quarter as it attracted new customers, after being hit hard at the start of the year by new regulations on highly leveraged betting.

Plus500 shares, which have lost over 60% of their value this year, jumped more than 11% after Tuesday’s first-half trading update to 600 pence, leading gainers on London’s midcap index.

Still, revenue for the first half totalled just $148 million, a far cry from the $465.5 million that Plus500 reported a year earlier. This reflected a collapse in first-quarter revenues, to less than a fifth of a year earlier, after new rules protecting amateur retail investors from heavy losses hit Plus500 and rivals IG and CMC Markets.

Plus500, which is based in Israel but whose platform is registered in Cyprus, did not disclose its second-quarter revenues for 2018.

It had warned in February that revenue and profit would fall short of analysts’ expectations this year as the new regulations made it harder for some clients to use its online trading platforms.

Plus500 and its rivals have also been hurt by a general fall in volatility on financial markets, which limits the scale of swings in asset prices on which traders make money.

The VIX volatility index, Wall Street’s main fear gauge, however, rose almost 10% in the second quarter of 2019.

Plus500 said that the level of client spreads and overnight charges rose to about $93 million in the second quarter, after falling by $82 million in the first quarter.

Reduced levels of marketing across the company’s peer group partly led to a rise in customer numbers and lower costs of acquiring the customers, the company said.

“We believe this would argue for higher revenues, all being equal, in H2,” Liberum analyst Ben Williams said.

Peel Hunt analysts said marketing accounts for about 75% of Plus500’s costs, with new user acquisition costs making up 80% of marketing costs.

About 48% of first-half revenue came from clients outside the European Economic Area (EEA), while about 23% of revenue was generated by elective professional clients within the EEA.

Regulators in the European Union and Britain have tightened the rules for apps and online platforms on which anyone with a bank card could previously make highly leveraged bets.

Rising volatility in financial markets also helped lift revenues in the second quarter.

“In calendar Q1, market conditions proved difficult for the contracts for difference (CFD) brokers, and Plus500 was no exception. The market rebounded strongly but with relatively low volatility. Conditions have improved in Q2,” Berenberg analysts said.

Reporting by Noor Zainab Hussain in Bengaluru; Editing by Arun Koyyur and Susan Fenton

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