eToro: Assessing The Next Crypto IPO

Summary eToro is going public on May 14th, offering a unique social investing platform with a heavy reliance on cryptocurrencies for revenue. Despite a challenging 2023, eToro saw 225% revenue growth in 2024, with a significant turnaround to $192 million in net income. At $50 per share, ETOR’s IPO is oversubscribed, valuing the company at $4 billion, but it remains highly dependent on volatile crypto markets. While ETOR’s growth is impressive, the stock is speculative due to its retail focus and market volatility, making it a short-term trade opportunity. After pausing plans for an IPO back in April following tariffs in the US, eToro Group Limited ( ETOR ) is going public and expected to begin trading on Wednesday May 14th. The company primarily operates a retail-focused investment platform that allows customers to trade just about anything from stocks, commodities, cryptocurrencies, and even fiat currencies all within one platform. In this article, we’ll look at what eToro’s consumer edge might be, the company’s most recent reported financials, and whether I think ETOR is a buy given the strong investment demand for the oversubscribed IPO. What Makes eToro Different? There is certainly no shortage of ways for retail investors to get exposure to financial products in 2025. From a competitor standpoint, Robinhood ( HOOD ) is likely the closest thing to a head-to-head peer for ETOR. What, if any, edge does eToro have over a company like Coinbase ( COIN ) for crypto or a standard brokerage account with a legacy financial firm for buying traditional securities? Like Public.com, eToro offers a social element that investors won’t find through more traditional investment platforms. From eToro’s prospectus summary: eToro was founded in 2007 with the vision of a world where everyone can trade and invest in a simple and transparent way. We set out to change the retail investing experience by pioneering social investing . We have built a collaborative investment community designed to provide users with the educational resources and tools they need to grow their knowledge and wealth. Users can view other investors’ portfolios and statistics, and interact with them to exchange ideas and discuss strategies. The bold text above is my emphasis. In a way, eToro is a bit like a blend between Coinbase and Stocktwits – which, frankly, is a little dangerous, in my view. There is certainly something to be said about sharing ideas with other investors; this very platform – Seeking Alpha – is a fine example of that in practice. But having the ability to blindly copy the trades of other market participants can certainly add an element of risk to the company. Any time someone’s wallet is involved, it can potentially lead to conflict and I think by allowing investors to copy and engage with each other within the app, eToro potentially runs the risk of long term client churn. For instance, a user who comes to eToro with little to no trading experience may find that copy trading strangers is a great way to lose money quickly and be soured on the experience. But that is admittedly a guess on my part. What matters more is the company’s real numbers. eToro Financials At the end of 2024, eToro operated in 75 different countries and claimed 3.5 million funded accounts. After an abysmal 2023 that saw full year revenue fall by 38.7% from 2022, 2024 was terrific with 225% year over year growth: Revenue in 000s 2024 2023 2022 Net trading income from equities, commodities and currencies $328,706 $305,850 $393,480 Revenue from cryptoassets $12,147,329 $3,431,274 $5,595,977 Other (interest, currency conversion, trading derivatives) $164,518 $148,494 $344,332 Total revenue and income $12,640,553 $3,885,618 $6,333,789 Percent of Revenue from Crypto 96.10% 88.31% 88.35% Source: eToro prospectus I have two major takeaways from eToro’s revenue breakout. First, at 96.1% of total revenue, eToro is highly dependent on cryptocurrencies and digital assets for top line growth. This is perhaps why the company recently announced 29 new tokens listed on the platform; 17 of which are deemed ‘experimental’ assets. My second takeaway is non-crypto revenue in 2024 – though up year over year – actually failed to eclipse the level from 2022. Taking each of these points together I draw the same conclusion. ETOR is essentially a crypto ‘pure play’ bet at this point. Costs and Net income in 000s 2024 2023 2022 Cost of revenue from cryptoassets $11,816,192 $3,303,910 $5,738,498 Margin interest expense $36,660 $25,280 $8,850 R&D $131,071 $128,950 $153,582 SG&A $406,369 $395,857 $627,543 Finance and other expense, net $4,642 $3,889 $20,181 Total costs $12,394,934 $3,857,886 $6,548,654 Income (loss) before taxes on income $245,619 $27,732 -$214,865 Taxes on income $53,238 $12,473 $117 Net income (loss) $192,381 $15,259 -$214,982 Source: eToro prospectus Even through what was a down revenue year in 2023, the company has done a nice job flipping from a $215 million net loss in 2022 to $192 million in net income in 2024. This has no doubt been aided by a dramatically different gross margin from eToro’s crypto business: Figures in 000s 2024 2023 2022 Revenue from cryptoassets $12,147,329 $3,431,274 $5,595,977 Cost of revenue from cryptoassets $11,816,192 $3,303,910 $5,738,498 Gross Margin From Crypto 2.73% 3.71% -2.55% Source: eToro prospectus In 2022, eToro’s gross margin from crypto was negative. In 2024, not only was the gross margin from crypto positive; but at 2.7%, eToro’s gross margin is roughly double what Coinbase takes on consumer transaction volume. If eToro can continue earning this much from retail buyers trading digital assets, there’s a strong case to be made for going long the stock. An additional consideration is the balance sheet health of the business: Balance Sheet in 000s as of 12/31/24 Cash and cash equivalents $575,395 Short-term investment $65,000 Cryptoassets $113,279 Total assets $1,191,362 Total liabilities $358,987 Total equity $832,375 Source: eToro prospectus At $575 million in cash and equivalents, the company has enough liquidity to cover liabilities even before raising capital through the IPO. What Is The Right Price For ETOR? 10 million shares at $50 per share would put a market valuation of $4 billion on the company. And again, this is apparently a significantly oversubscribed offering. But even at $50 per share, ETOR would be priced at nearly 5x book value and 4x the sector median for the multiple. That said, 5x book for ETOR would still put the company’s price to book valuation beneath that of both HOOD and COIN at 7x and 6x respectively: Data by YCharts At a $4 billion valuation, ETOR would also be priced at just under 21 times trailing earnings. Data by YCharts Again, this is well ahead of the financial sector median but below both HOOD and COIN. And neither of those companies exhibited the revenue growth that eToro produced in 2024. So as a base case, if we priced ETOR based on a 7x price to book multiple, it would put the company at a roughly $5.8 billion valuation and $73 stock price assuming 10 million shares at IPO. At a 35 P/E ratio and 10 million IPO shares, ETOR trades at closer to $84 per share. And this would just put ETOR in line with HOOD from a valuation standpoint – a company that hasn’t grown the top line nearly as fast as eToro in the last year. Closing Thoughts While some of these share prices I just threw out based on peer valuation multiples might make buying the ETOR IPO look like a slam dunk, please keep in mind how volatile the cryptocurrency business is. I suspect that ETOR is going to be a highly volatile stock, particularly during its first few sessions. And while this might be an exciting opportunity to buy stock in a growing global business in an exciting industry, there are serious risks to consider. First, eToro is a very retail-focused platform. The US equity market is fun when gains are easy and retail traders pile into the market. But from a market direction standpoint, 2025 is very uncertain in my view and the recent rally from April lows could be little more than an aggressive dead-cat bounce. We’ve seen how volatile eToro’s top line has been over these last three years and the reliance on digital assets for top and bottom line performance figures to continue given the consumer cohort that eToro appeals to. While I may participate in ETOR from a short term trade standpoint, I don’t plan to hold a large position for an extended period of time. That said, I’m calling ETOR a speculative ‘buy’ prior to IPO pricing .

Source: Seeking Alpha