Freetrade has set its sights on cryptocurrencies as part of a push in Europe as the popular trading app expects to turn a profit by the end of 2024.
The platform, which started in 2018 allowing investment in UK stocks and ETFs, has applied for crypto clearance from European regulators, according to crowdfunding documents seen by Financial news.
By adding “new revenue-generating products”, Freetrade – currently loss-making – says it could more than double its number of funded accounts to 2.4 million by the 2024/25 financial year.
The privately owned UK company was one of the first platforms to offer commission-free trading. Its expansion into crypto marks another bid for market share in the competitive day trading space, as well as an attempt to shore up the results of a company in an industry that has seen its fees decline as the boom in actions of memes during lockdown subsides.
The company expects its revenue to increase tenfold from 2022 levels to £157.5million by 2025, according to its crowdfunding documents, under a “growth scenario” in which recording cryptographic is granted and put into use next year. However, the forecast also depends on the success of international expansion in the EU and Canada.
If it were able to achieve the expected revenue boost in its crowdfunding pitchdeck, Freetrade would turn its projected loss of £40.1m for 2022 into a profit of £23.5m in 2025.
“Our business has proven resilient in this market,” a Freetrade spokesperson said in a statement to FN.
“Our clients invest regularly and build their portfolios with a decidedly long-term view. In the coming months, we will pursue our European expansion plans while continuing to develop exciting new features for our product.”
Freetrade is looking to continue to build its subscription service offerings as a much more reliable revenue stream, according to crowdfunding documents.
Its base case scenario in the crowdfunding documents, which assumes a recessionary environment over the next 12 months and “moderate” international expansion, requires a “relatively small funding round” totaling £20m, plus funding annual participation.
The much more ambitious growth scenario would require three times as much funding from institutional investors.
Peter Sleep, Chief Investment Officer at 7IM, said: “The growth scenario I would describe as aggressive. The base case is better, but I think they need to look at their marketing/customer acquisition costs As they enter more markets, marketing costs will remain high and they will also find that their compliance costs will also increase.”
Other market watchers also expressed skepticism.
“Their baseline projection for 2023 suggests they can reduce ‘marketing and overhead’ costs by £18m while increasing customer numbers by 19% and revenue by 54%,” said one. consultant familiar with the market. “It smacks of wishful thinking.”
The consultant added that the crowdfunding pitchdeck contains little discussion of impending regulatory headwinds, including the Financial Conduct Authority’s broader crypto crackdown.
“Subscription business models are an attractive way to generate recurring revenue to offset trading revenue volatility,” said James Nicholls, managing director of compliance firm Braithwate. “However, as the FCA’s new Consumer Duty comes into effect, companies will need to assess whether these plans provide real value to their customers.”
Freetrade’s recent attempts to woo City investors during the tech rout have failed. According to FinancialTimesthe company had signed term sheets with new investors for a funding round that would have given it a £700m price tag, but the deal fell apart in January after the tech shares sold off sharply.
LILY Nutmeg CEO Neil Alexander explains how the JPMorgan takeover will transform the company
This forced Freetrade, which is trying to gain market share from giants such as Hargreaves Lansdown and AJ Bell, to return to crowdfunding for the eighth time on September 14.
Mike Barrett, director of investment advisory firm, Lang Cat, said the result so far is impressive and shows that even in the current environment, some investors are willing to pump money into fintech startups, including private equity, but companies had to tighten their purse strings. .
Profits at brokerages such as Robinhood – which as of March 2022 had 22.8 million funded accounts, with the majority of their revenue coming from trading volumes – have fallen in 2022 as capital markets activity plummeting from last year’s highs. Digital wealth managers such as Nutmeg, now owned by JPMorgan, also struggled to be profitable, posting a loss of £15m in 2020.
Corrections and amplifications
An earlier version of this article stated that Freetrade started allowing investments in 2016. The company was incorporated in 2016 and started allowing investments in 2018.
He also said that Freetrade trades U.S. penny stocks over-the-counter. OTC stocks have yet to launch on the platform and will focus on big foreign names when they do.
To contact the authors of this story with comments or news, email Kristen McGachey and Justin Cash
