eToro Stock Dips Following Q2 Earnings: Should You Buy the Dip?

eToro Group's shares pulled back 8% post-earnings, despite a 54% YoY jump in assets under administration to $17.5 billion and steady growth in funded accounts. Crypto revenue rose to $1.9 billion in Q2, up $300 million YoY. With the stock trading at the lower end of its 52-week range, the question is whether this dip represents a buying opportunity. eToro commands a forward P/E ratio of 21.34 and a P/S ratio of 0.31.

eToro Group's shares experienced a notable 8% pullback following the company's first earnings report as a publicly traded firm. The Tel Aviv-based trading and investing platform, which went public in May at a $4.2 billion valuation, saw its stock slide to a market cap closer to $4 billion. Despite this setback, the company reported strong fundamentals, including a 54% year-over-year (YOY) jump in assets under administration (AUA) to $17.5 billion and steady growth in funded accounts.

The earnings report highlighted a significant increase in crypto revenue, rising to $1.9 billion in Q2, up roughly $300 million YOY. This growth underscores eToro's continued exposure to digital assets, which remains a volatile market. The company's stock now trades at the lower end of its 52-week range, with shares closing at $48.14, a sharp fall from the $6 billion market capitalization it touched on its debut.

Analysts remain cautiously optimistic about eToro's prospects. While the forward price-earnings (P/E) ratio of 21.34 and the price-sales (P/S) ratio of 0.31 suggest reasonable valuation for a growth fintech, the razor-thin profit margin of 1.53% and the absence of a trailing P/E raise questions about the durability of earnings. The company's focus on reinvestment in growth, rather than dividends, may also deter income investors.

eToro's earnings report indicated a 31% increase in adjusted EBITDA to $72 million, driven by increased revenue and controlled costs. Management emphasized product innovation as a key driver, citing the launch of 24/5 U.S. equity trading, expanded crypto coverage, and new tokenization initiatives for stocks, ETFs, and futures. These developments aim to enhance user engagement and differentiate eToro from competitors.

Looking ahead, the company expects growth in long-duration portfolios through a partnership with Franklin Templeton (BEN), expansion into French savings products, and scaling in Asia from its Singapore headquarters. However, near-term execution risks, such as IPO-related expenses, may temper these expectations.

Wall Street's sentiment towards eToro remains positive, with a "Moderate Buy" rating consensus and an average target price of $68.53, suggesting a 42% upside from current values. Estimates vary significantly, reflecting skepticism about the sustainability of crypto-led growth. However, management's success in its tokenization and AI roadmap, coupled with increasing profit margins, provides grounds for substantial upside from current lows.

Investors willing to make a contrarian bet in the face of a resurgence in digital asset interest and fintech innovation development can look at ETOR stock as a potential buying opportunity. However, the volatile nature of the crypto market and the company's reliance on it for a significant portion of its revenue present risks that investors should carefully consider.

References:
[1] https://www.barchart.com/story/news/34228387/etoro-isnt-feeling-the-crypto-love-should-you-buy-the-dip-in-etor-stock
[2] https://www.theblock.co/post/366629/etoro-posts-54-aua-jump-crypto-revenue-hits-1-9-billion-in-first-earnings-report-since-going-public