Despite posting an impressive 28% year-over-year revenue growth, eToro (NASDAQ: ETOR) reported third-quarter results that revealed a sharp sequential slowdown, with net contribution inching up just 2.4% from the previous quarter and user growth stalling at only 100,000 new funded accounts.

Shareholders, however, appear to be reacting positively to the results, and the company’s stock was up 9 percent in premarket trading.

eToro Posts Modest Q3 Growth as Revenue Levels Off

The trading platform posted a net contribution of $215 million for the three months ended September 30, up from $210 million in the second quarter. The company’s net income reached $57 million, a jump from $30.2 million in Q2, though the earlier period included $15 million in IPO-related costs that skewed the comparison.

CFO Meron Shani touted the results as proof of “profitable growth” and “disciplined cost management,” noting that adjusted EBITDA climbed 43% year-over-year to $78 million. But the sequential quarter told a different story, with adjusted EBITDA rising just 8.3% from Q2’s $72 million.

User Growth Hits Speed Bump

The company added 100,000 funded accounts during the quarter, bringing the total to 3.73 million – a modest 2.8% increase from 3.63 million at the end of June. Assets under administration grew to $20.8 billion, up 18.9% from $17.5 billion in Q2, driven largely by market appreciation rather than new deposits.

eToro’s user acquisition engine appears to be cooling after its May initial public offering. While the company blamed no specific factor, the growth rate has decelerated from earlier in the year when it absorbed customers from its 2024 acquisition of Australian app Spaceship.

“We are focused on increasing our customer base and share of wallet,” Shani said, though the quarterly numbers suggest that’s becoming harder to achieve.

October Metrics Show Mixed Signals

In an unusual disclosure, eToro released selected October business metrics that painted a picture of volatile trading activity. Capital markets trades surged 53% year-over-year to 62 million, while crypto trades jumped 84% to 5 million. However, assets under administration slipped to $20.5 billion in October from $20.8 billion at quarter-end, suggesting either market declines or customer withdrawals.

Funded accounts ticked up to 3.76 million in October, adding just 30,000 users in the month, a pace that would deliver annual growth well below the company’s historical rates.

Buyback Raises Questions About Capital Strategy

The company’s board authorized a $150 million share repurchase program, with plans to execute an initial $50 million through an accelerated buyback. Management framed the move as a sign of confidence, claiming “its current share price does not fully reflect the Company’s fundamental value.”

The repurchase authorization also serves another purpose: giving eToro currency for potential acquisitions. The company disclosed that buybacks provide “additional flexibility to support potential future strategic initiatives, including mergers and acquisitions, where eToro shares could serve as an effective transaction currency.”

That language suggests management may be eyeing deals, though no specific targets were mentioned. With $1.2 billion in cash and short-term investments on the balance sheet, eToro has the firepower to pursue transactions beyond what its stock would fund.

Revenue Mix Stays Concentrated in Crypto

The company’s reliance on cryptocurrency trading remains acute. Revenue from cryptoassets totaled $3.97 billion in Q3, though cost of revenue consumed $3.89 billion of that figure, leaving net contribution from crypto of just $77.4 million. That crypto margin came in below Q2’s crypto contribution, highlighting the thin economics of cryptocurrency intermediation.

Traditional equity trading delivered $72.9 million in net contribution, down from $114 million in the second quarter. Net interest income provided another bright spot at $58.9 million, up from $43.9 million in Q2, as the company benefited from higher balances in customer accounts.

Product Rollout Continues Across Four Pillars

CEO Yoni Assia outlined continued product development across what the company calls its four strategic pillars: trading, investing, wealth management, and neo-banking. The third quarter saw the launch of 24/5 stock trading for all S&P 500 and Nasdaq 100 stocks, expanded futures access in Europe, and the introduction of Copy Trading in the United States.

The company’s eToro Money accounts reached 1.75 million, with debit card issuance jumping 2.4 times from the second quarter. The Money product offers up to 4% stock-back rewards on purchases – an aggressive incentive that raises questions about unit economics.

Assia pointed to the company’s “unique shared social experience” as a competitive advantage, though he did not address how that translates into customer retention or higher lifetime value compared to rivals like Robinhood Markets Inc. or Coinbase Global Inc.

Cost Control Improves, But Expenses Rise

Total costs increased to $4.04 billion from $2.06 billion in Q2, driven almost entirely by the cost of crypto revenue, which mirrors the company’s transaction volume. Operating expenses – combining R&D, sales and marketing, and general administrative costs – totaled $143.2 million, down from $167.7 million in the second quarter.

The company spent $37.9 million on research and development in Q3, down from $38.9 million in Q2. Sales and marketing expenses dropped to $47.9 million from $52.6 million, suggesting either improved efficiency or reduced customer acquisition efforts.

Finance expenses of $2.6 million were down sharply from $6.3 million in Q2, though the company did not explain the decline.

This article was written by Damian Chmiel at www.financemagnates.com.FinTechRead More

You might also be interested in reading Blackrock Pulls $112M From IBIT as Bitcoin ETF Outflows Extend Cooling Phase.