eToro Q3 Earnings Call - ETORO GROUP LTD

Financial Performance:

• Q3 2026 net contribution fell 13% YoY to $186 million; adjusted EBITDA declined 56% YoY to $34 million.
• Net income for the first nine months of 2026 was $150 million, compared to $147 million in the same period of 2025.
• Funded accounts rose 18% YoY to 4.39 million; equity Assets Under Management (AUM) hit a record $11.5 billion (up 24% YoY); total AUM reached $20.8 billion.
• Net trading contribution from capital markets increased 21% YoY to $88 million, while crypto net contribution dropped 53% YoY to $26 million (though up 141% QoQ due to volatility recovery).
• Net interest income was $50 million, down 19% YoY; eToro Money contribution fell 5% YoY to $20 million.
• Adjusted OPEX was $152 million (up 1% QoQ); selling and marketing expenses were $68 million, with expected declines in Q4.
• Balance sheet strengthened with $1.2 billion in cash and equivalents, generating $21 million in free cash flow from operations.

Guidance and Future Outlook:

• Q4 adjusted OPEX is expected to decrease by approximately 5% compared to Q3 levels.
• Management anticipates a pickup in equity activity in November driven by higher volatility, following a Q3 cooling period.
• The company expects agentic trading to see material adoption within 6 to 12 months, projecting agentic trades to surpass click-based trades by the end of 2027.
• Full integration of TradeZero capabilities (margin, futures, prediction markets) into the main app is planned for 2027 to match global offerings.
• LatAm growth strategy targets $100 million in revenue within 2-3 years, leveraging the LB Finanza acquisition as a regional base.
• The $250 million share repurchase program remains active, with timing dependent on market conditions and the company's undervaluation assessment.

Business Segments and Product Lines:

• Trading Platform: Launched "eToro Edge" desktop experience for active traders, achieving record weekly volumes; rolled out 24/7 trading across crypto, indices, commodities, and equities.
• AI & Innovation: "Tori" AI agent now connects with Cloud, ChatGPT, and Grok; usage of APIs and agentic trading surged 250% QoQ; launched "Tori Reloaded" for enhanced customer service.
• Product Launches: Introduced buying power (converting positions to margin) and 26 new Smart Portfolios in the U.S. post-RIA license; prediction markets launched for international users.
• Neobanking: Over 2.5 million local currency accounts; expanding Visa debit card availability beyond Club members to boost retention and ARPU.
• Acquisitions: Pending $225 million TradeZero acquisition (expected H1 2027); completed agreement to acquire LB Finanza (Argentina neobank) valued at <$20 million.

Market and Competitive Landscape:

• Market volatility is identified as a primary driver of trading activity; the current cycle mirrors historical patterns of high volatility followed by cooling periods.
• Shift in IPO market dynamics sees issuers increasingly seeking retail distribution in Europe and UK (e.g., SpaceX), creating new customer acquisition channels.
• Prediction markets face a bifurcated regulatory landscape: regulated "TradFi" in the US vs. evolving regulations for DeFi and global expansion in LatAm and Asia.
• Competition in social investing remains strong; the Pro-Investor Summit highlighted a large base of 6,000 active professional investors, though actual AI usage for active trading currently sits at ~5%.

Risks and Challenges:

• Profitability pressure due to increased marketing spend on the new app and brand refresh, alongside lower crypto contribution.
• Regulatory uncertainty surrounding prediction markets in Europe and sports betting sectors globally.
• Crypto market volatility remains cyclical; lower volatility periods historically correlate with reduced trading activity and AUM growth headwinds.
• Integration risks associated with four M&A transactions completed in 2026 and the pending TradeZero deal.

Management Commentary and Tone:

• Management expressed strong confidence in the long-term growth trajectory, emphasizing the strategic value of the diversified business model and AI integration.
• Tone was optimistic regarding the "always-on" market rails and the transformative potential of agentic trading, despite near-term profitability softness.
• Leadership emphasized a shift from pure customer acquisition to increasing ARPU through product attachment and automated trading tools.
• CEO Yoni Asya highlighted the "double-digit US market share" ambition as a key long-term KPI driver across customers, assets, and volumes.

Analyst Questions and Answers:

• ARPU & Marketing: AI is expected to lower Customer Acquisition Costs (CAC) through personalized ad targeting, while product expansion (Edge, APIs) will drive ARPU growth.
• Agentic Trading: Adoption is expected to close the gap between AI awareness and active trading usage within 6-12 months; winners will be those with the best data, tools, and regulatory licensing.
• Copy Trading vs. AI: AI is viewed as complementary, empowering Pro Investors to become "one-person hedge funds" and enhancing copy trading rather than cannibalizing it.
• IPO Access: Retail access to mega-IPOs is a significant trend in Europe/UK; eToro aims to capture customers through these events and subsequent derivatives trading.
• M&A Strategy: Post-four deals in 2026, the focus will shift to integration and digestion of acquired companies (LB Finanza, TradeZero) before new major deals.
• U.S. Roadmap: Post-TradeZero, the U.S. offering will combine mass-market retail products with active trader tools; US marketing spend is projected to remain around 25% of net contribution.

Other Key Points:

• eToro App Store now hosts over 250 apps, expanding third-party tool integration.
• The company is transforming its marketing function to be "AI-native" across execution and brand building.
• Technical issues during the Q&A session briefly interrupted the Q2 segment on smart portfolios, which were clarified as being available for US users under the RIA license.
• Buy Power feature allows customers to spend portfolio value directly via debit card, creating a unified investment-super-app ecosystem.