Summary
Highlights
The presenter introduces eToro as a stock on his radar, currently down 54% from its highs, presenting an asymmetric opportunity. He highlights its sub-13 PE ratio and $2.6 billion market cap, asserting that the market has mispriced the company since its public offering last year. eToro is a profitable global retail brokerage known for social trading and a meaningful balance sheet.
eToro's core markets are Europe and the UK, accounting for 70% of funded accounts, but it's expanding in Asia-Pacific, America, and the Middle East/Africa. The European brokerage market is projected to grow at an 11% CAGR, benefiting eToro's established presence, especially among younger investors. Analysis of the 2018 cohort shows strong retention, with 41% of revenues from users six years later still recurring, indicating effective monetization and platform upgrades.
Commissions, though cyclical, exploded in 2024, showing eToro's benefit from market volatility. The eToro Club drives retention, with 72% of members having over three years tenure. Kathy Wood's early investment, despite a 50% paper loss, indicates long-term conviction.
The presenter outlines six reasons for eToro's potential upside: profitability (double-digit ROE trending to 20%, 30% earnings from interest, diversified model), user growth (funded accounts growing, social trading boosting acquisition/retention), trading activity (younger generations entering investing, higher engagement in Europe), platform performance (resilient app downloads, strong UI/engagement), regulatory landscape (licensed across regions, early mover advantage), and strategic distribution (partnerships like X for financial education and brand visibility).
eToro's ROE and ROA turned positive post-2022. It trades at an all-time low price-to-sales and a forward P/E of 10, expecting $300 million net income by 2027. Compared to competitors, eToro has the lowest forward P/E and price-to-book ratio. Its funded accounts grew at an 11% CAGR over three years, nearly double Robinhood's 6%.
Three main risks include cyclicality (market crashes would hit revenue/net income), cross-sell limitations (less product depth than competitors like Robinhood with banking/lending), and regulatory exposure (broader geographic footprint increases complexity).
Four catalysts could heavily reprice eToro: capital returns (CEO believes it's undervalued, $150 million buyback authorized), valuation rerating (sustained free cash flow growth and ROI), X partnership upside (social trading and financial education differentiation), and M&A optionality (eToro has $1.2 billion cash, $2.6 billion market cap, zero debt, trading at a net-net value of $15).
Three scenarios predict eToro's intrinsic value. The base case (10% revenue growth, 17% net income/free cash flow growth, P/E of 20) yields a DCF intrinsic value of $111 and an EPS method value of $67, representing a significant margin of safety. Even the bear case (6% revenue growth, 7% net income/free cash flow growth, P/E of 13) shows substantial upside. The presenter concludes that eToro is heavily undervalued and represents a deeply asymmetric value opportunity, poised for market share growth and continued expansion.