Shares in contracts for difference (CFD) provider Plus500 (PLUS) spark up 4.6% to £13.05 on news it now expects trading to smash expectations for the year to 31 December 2018.
CFDs can be extremely risky by enticing people that may not necessarily understand how they work in a bid for significant gains - or losses.
Over the nine-months to 30 September, trading at Plus500 looks healthy, yet the third quarter numbers tell a different story as the ESMA regulations came into effect in August.
The ESMA measures aim to protect retail investors via lower leverage, stressing risks in promotional materials and restricting incentives.
RISING COSTS AS NEW CUSTOMERS FALL
It appears Plus500 struggled to bring in new customers in the third quarter, with the numbers falling 51% to 20,684 compared to the third quarter of 2017.
Plus500 is also splashing the cash to acquire ‘high lifetime value’ users with average user acquisition costs more than doubling from $689 to $1,581.
These customers generally spend more money and are less likely to stop trading. Less leverage from retail customers in the European Economic Area hit average spending, down from $1,232 to $981 in the third quarter.
Yet the positive news is that since the end of the third quarter, 'Plus500 has seen the return of higher volatility across asset classes, and consequently stronger trading', encouraging analysts to nudge up their forecasts.
WHAT DO THE ANALYSTS SAY?
Liberum number cruncher Ben Williams has raised his adjusted pre-tax profit estimate by 6% from $420m to $446m. He argues investors are not focusing on Plus500's intense investment to grab market share at a time when rivals are cutting marketing spending.
Berenberg’s Donald Tait is confident the return of equity markets volatility should drive user spending higher and justify Plus500's high acquisition costs.
