eToro Q3 Earnings Call - ETORO GROUP LTD

Explicit Guidance:

• Q4 OPEX: Expect adjusted Operating Expenses (OPEX) for Q4 to be lower than Q3 by 5% or more.
• Marketing Expense Ratio: Strategic target for adjusted selling and marketing expenses to settle within a 20–25% band of net contribution, with 2027 expected run rates in the ~25% range.
• M&A Accretion: The TradeZero acquisition is expected to be accretive to adjusted EPS in the first full year post-completion, prior to synergies.
• Acquisition Timeline: The TradeZero transaction (approx. $225M) is expected to close in the first half of 2027, subject to regulatory approvals.
• Latin America Revenue: Target to grow the Latin America business to $100 million in revenues within the next 2–3 years following the LB Finanza acquisition.
• LB Finanza Deal Size: The acquisition of LB Finanza is estimated at less than $20 million and is not expected to be material on the balance sheet.

Business-Segment Outlook:

• Trading Activity: Anticipate a pickup in equity activity in November versus October driven by higher volatility; 24-5 trading shows nearly a quarter of volumes occur outside traditional hours, with 24-7 trading expected to drive incremental activity upon full deployment next year.
• 24-7 Trading: Belief that fully deploying 24-7 trading across assets (crypto, indices, commodities, equities) will significantly boost activity.
• Agentic Trading: Expect adoption to accelerate materially within the next 6–12 months; project that by the end of next year (Q4 2027), agentic trades will exceed manual click-based trades on the platform.
• U.S. Smart Portfolios: Following the Q3 launch of 26 smart portfolios in the U.S. (RIA license), plan to introduce more active and leveraged smart portfolios (quantitative/alpha strategies) post-TradeZero acquisition.
• Buying Power: New capabilities allowing conversion of positions to margin for stocks/crypto expected to increase assets-based revenues.
• Prediction Markets: Currently live for international users; seeking regulatory expansion into Europe, Latin America, and selected Asian markets, while noting challenges in sports betting jurisdictions like the UK.
• Pro Investor Program: Leveraging ~6,000 pro investors to act as "one-person hedge funds" using AI agents to generate alpha and drive copy trading activity.
• Neobanking: Expansion of Visa debit cards and local currency accounts (currently 2.5M) to the broader customer base beyond Club members to increase retention and ARPU.

Market and Competitive Outlook:

• Volatility Cycle: Expecting a cyclical pattern where elevated volatility (current) is followed by a cooling-off period; however, current volatility creates opportunities for retail investors to "buy the dip" compared to the past.
• IPO Distribution: Observing a structural shift where large IPOs seek retail distribution (post-SPAC/SpaceX trend); eToro positioned to capture new customers and derivatives trading volume from major IPOs in Europe, UK, Australia, and Canada.
• Agentic Trading Evolution: The gap between users using AI (95%+) and those trading with AI (5%) is expected to close; differentiation will rely on data access, API capabilities, and regulatory licensing.
• Copy Trading vs. AI: Agentic AI expected to complement rather than cannibalize copy trading by enabling pro investors to scale strategies and allowing customers to run parallel AI and copy-trading strategies.

Macro / Industry Outlook:

• Macro Trends: Confidence in supportive macro trends driving long-term value.
• Regulatory Environment: Acknowledges evolving regulations for prediction markets and smart portfolios; emphasizes the necessity of compliant licensing for automated trading in key jurisdictions.
• Crypto Market Dynamics: Crypto activity expected to remain volatile with cyclical patterns; lower volatility creates headwinds for trading contribution, while higher volatility drives recovery and pricing improvements.
• Cost Pressures: Noting rising costs per click in Google Search; shifting marketing mix toward influencers and social media channels to optimize efficiency.

Strategic Initiatives:

• Product Launches: Continued rollout of "eToro Edge" (desktop trading) and "Tori Reloaded" (AI customer service/management agent); expansion of the eToro App Store to 250+ apps.
• AI Integration: Transforming marketing and R&D to be "AI-native" to automate processes, reduce manual work, and lower Customer Acquisition Costs (CAC) via personalized content.
• M&A Activity: Pausing aggressive acquisition pace to integrate the four deals closed this year (including TradeZero and LB Finanza); focusing on synergies between TradeZero (US active trading, futures, options) and eToro (crypto, international reach).
• Shareholder Returns: Initiated a $250 million share repurchase program, contingent on market conditions and strategic flexibility.
• Geographic Expansion: Using LB Finanza as a foundation to expand across Latin America; planning to bring the full "global offering" of eToro to the U.S. following TradeZero integration.

Risks and Headwinds to Outlook:

• Market Volatility: Lower volatility in equities, commodities, and crypto has previously caused headwinds and cooling-off periods for trading activity.
• Regulatory Uncertainty: Expansion of prediction markets and smart portfolios is subject to evolving regulatory frameworks in Europe, Latin America, and Asia.
• Integration Risks: Closing of the TradeZero deal depends on regulatory approvals and customary conditions; post-closing integration challenges may impact synergy realization.
• Marketing Efficiency: Rising acquisition costs in traditional channels (e.g., Google) pose a risk if AI-enabled personalization and channel shifts do not sufficiently offset them.

Management Tone on the Future:

• Confidence Level: High confidence in the "always-on" trading vision, the long-term growth prospects of the business, and the undervaluation of shares (justifying buybacks).
• Strategic Clarity: Clear pivot toward AI-driven "agentic trading" as the next evolution, viewing current adoption as the beginning of a major inflection point.
• Disciplined Growth: Commitment to financial discipline (OPEX guidance) while investing in innovation; balancing immediate profitability pressures with strategic M&A and product development.
• Resilience: Emphasizing the strength of the diversified business model across asset classes and geographies to navigate crypto cycles and market cooling.

Miscellaneous:

• Technical Issues: A minor audio interruption occurred during the Q&A session but was quickly resolved.
• KPI Updates: October monthly data showed assets under administration down 6% YoY and total trades/invested amount down YoY, mirroring Q3 trends but with November showing early signs of recovery.