Regulation and low market volatility hits Plus500 in H1

Israeli Contracts for Difference trading provider Plus500’s revenue declined 68% year-on-year to $148m for the first half of 2019, while net profits fell by 80% to $51.6m amid what the company described as “a difficult period for the entire industry.”

European regulations regarding Contracts for Difference trading, as well as low levels of market volatility, had a major effect on the company’s revenue.

“Our first half performance, and trading to date in the third quarter 2019, is consistent with current expectations for 2019,” chief executive Asaf Elimelech said, however.

In February, EU regulations limited the amount of money amateur traders can borrow from their brokers, a move which prompted Plus500 to announce that profits in 2019 would be “materially lower” than the prior year and the company’s share price to decline by 56.6%.

In addition to regulation, Eimelech highlighted a lack of market volatility as a reason for lower revenue in 2019.

“The group performed well during what was a difficult period for the entire industry,” Elimelech said. “Financial markets from February 2019 to April 2019 were very stable, providing a limited number of trading opportunities for customers.”

Elimelech added that the company responded to these challenges by finding new ways to innovate: “Given the market backdrop, we continued to concentrate on delivering significant enhancements to the trading platform, with the addition of functionality which appeals to more sophisticated traders, and to the level of customer service, with Plus500 becoming the first major CFD trading provider to integrate WhatsApp as an additional customer communication channel,” he said.

Following the European regulatory changes, the company’s percentage of revenue from the European Economic Area declined to 52.3%, while 15.3% came from Australia.

73% of the company’s revenues came from customers who had been trading on Plus500 for more than one year, while 14% came from customers who had been trading for six months or less.

Plus500’s expenses also declined, with selling and marketing expenses declining to $71.2m, with administrative and general expenses down to $12.3m. After financial income and expenses, plus taxes, were factored in, net profit dropped from $261.7m in H1 2018 to $51.6m.

Most of the decline in revenue and profit came from the first quarter of 2019, while increased volatility in the second quarter led to some improvement. The company took in $94.1m in revenue in Q2 of 2019, up from $53.9m the previous quarter, after acquiring 26,234 new customers.

“Overall, the Board remains optimistic about Plus500's future prospects and its potential to create value for all stakeholders,” Elimelech said.

The company also announced a $50m share buyback, helping Plus500’s share price rise by 20% from Monday’s close.