eToro's IPO: A Retail Trading Revolution or a Risky Bet?

In the ever-evolving world of finance, eToro, the Israeli fintech giant, has made a bold move by filing for a US IPO. This decision comes at a time when retail trading is booming, driven by the rise of zero-commission trading apps and the increasing interest in cryptocurrencies. But is this a sign of a retail trading revolution or a risky bet in a volatile market?

eToro, founded in 2007 by Yoni and Ronen Assia, has always been at the forefront of democratizing finance. Its social trading platform allows users to follow and copy the trades of successful investors, making it easier for inexperienced traders to participate in the market. The company's revenue more than tripled to $12.6 billion last year, with the lion’s share coming from cryptocurrency-related revenue, which rose to $12.1 billion last year from $3.4 billion in 2023. This significant increase in revenue, particularly from cryptocurrency trading, highlights the growing interest and participation in retail trading, especially among younger and more tech-savvy investors.



However, eToro's IPO filing also comes with its share of risks. The company is looking to raise $300 million–$400 million at a valuation of $4.5 billion, which is below the $10.4 billion it sought in 2021. This valuation, although lower, still reflects a strong belief in the company's future growth prospects. But the question remains: is this a sustainable growth or a bubble waiting to burst?

The retail trading market has also been boosted by the growing interest in cryptocurrencies, with eToro's crypto trading accounting for more than 40% of overall eToro Revenues in 2024. The company's strategy of acquiring more users in existing markets, increasing its share of existing user assets, and moving into new markets further underscores its confidence in the future prospects of the retail trading market. With 70% of funded client accounts located in Europe and the UK, and 16% in the Asia-Pacific region, eToro is well-positioned to capitalize on the growing demand for retail trading services in these regions.

But the road ahead is not without challenges. The SEC has taken issues with some of the company's operations. Earlier this month, eToro's U.S. division received a findings letter from the agency. That letter "identified regulatory deficiencies related to the broker-dealer's recordkeeping, customer account maintenance and net capital requirements." eToro says it is working to address the issue. It also has a sanctioned Russian investor: One of the company's largest shareholders is Sberbank, Russia's largest lender. As a result of sanctions, Sberbank is unable to exercise its voting rights in eToro and is barred from selling those shares, receiving dividends on said shares, or receiving new shares. Sberbank has not received at least 60,303 worth of preferred shares it was entitled to.



In conclusion, eToro's decision to file for a US IPO is a bold move that reflects the current state and future prospects of the retail trading market. The company's growth story is impressive, but the risks are real. As retail trading continues to boom, it remains to be seen whether eToro's IPO will be a retail trading revolution or a risky bet in a volatile market. Only time will tell.