eToro: The Disconnect

Moat Investing1.96K FollowersFollow5ShareSavePlay(23min)CommentsSummaryeToro (NASDAQ: ETORO) is a profitable, global brokerage platform trading at a deep discount due to misunderstood financials and legacy SPAC-era sentiment.Core business fundamentals are robust: eight straight quarters of net inflows, double-digit AUA and deposit growth, and consistent mid-30s EBITDA margins.GAAP revenue reporting distorts true profitability; net contribution reveals 30%+ margins and strong operating leverage, overlooked by many market participants.With a $1.32B cash balance, active buyback, and 7x EBITDA multiple, ETORO is materially undervalued versus peers, with rerating potential as fundamentals outpace narrative. asbe/iStock via Getty Images Investment Thesis eToro is trading like a failed unprofitable SPAC from 2021, even though the company looks nothing like that era. The stock is down sharply from the IPO price, but when you look at the business youThis article was written byMoat Investing1.96K FollowersFollowWe are a group of experienced investors that like to dig deeper into stocks to find growth stories at a reasonable price with strong economic moats. We also aim to conduct high-quality analysis by deep diving into valuations, key business drivers, risk/reward, and different future scenarios.Analyst’s Disclosure:I/we have a beneficial long position in the shares of ETOR either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does eToro’s accounting treatment impact perceived profitability and valuation?GAAP gross revenue reporting for crypto trades masks true economics; using net contribution reveals 30%+ margins, making ETORO appear far more profitable than screeners suggest.What are the most significant forward growth drivers for ETORO?Expanding US crypto offerings, Singapore market entry, 24/5 trading, and a shift toward higher-value, mass affluent users are accelerating deposit and AUA growth at double-digit rates.How does ETORO’s capital allocation signal management’s confidence?A $150M buyback, funded by a $1.32B cash position, underscores management’s view that shares are materially undervalued and highlights financial strength uncommon among fintech peers.Recommended For You