‘Our clients prefer US stocks’, says founder of £2.8bn trading platform

 

Interview: eToro boss on why the prospect of a ‘home market’ listing lacks appeal

 

Matthew Field

4 May 2024

 

The boss of £2.8bn share trading business eToro has poured cold water on the prospect of a London float, saying British technology stocks are “lagging behind” US peers as the Israeli business prepares to go public.

 

Yoni Assia, the 43-year-old boss of the digital investment business, said market conditions in New York were currently more favourable, as eToro considers a long-awaited debut on public markets.

 

“Right now we are at the early stage of markets heating up,” Mr Assia told The Telegraph. “Over the past roughly three to four months you have suddenly seen the [valuation] multiples come back into fintech and growth in the US and right now Europe and the UK are still lagging behind.”

 

The suggestion that eToro will snub the London Stock Exchange comes despite the fact that the online trading business makes the majority of its revenues from Europe and the UK – its biggest market. The company, which has over 30 million registered users, employs around 60 people in Canary Wharf.

 

British technology entrepreneurs and investors have long complained that America’s public markets offer more generous valuations and have a deeper pool of investors than the City of London.

 

Mr Assia’s apparent reluctance to plot a listing in London will fuel fears that the stock market is in terminal decline.

 

The London Stock Exchange has recently suffered an exodus of companies through delistings and takeovers, including cyber security business Darktrace which is in the process of a £4.3bn takeover by private equity. Meanwhile, companies including Cambridge-based chip giant Arm have turned their back on London in favour of listing in New York.

 

Mr Assia previously told The Telegraph as far back as 2018 eToro was open to a future London listing. However, the prospect that the Israeli fintech champion will choose London over New York appears increasingly remote.

 

In 2022, the Israeli trading business targeted a US listing by merging with a special purpose acquisition company. At the height of booming demand for financial technology stocks, it would have valued the business at over $10bn.

 

However, the deal fell through last year and eToro is now worth a more modest $3.5bn (£2.8bn) after a $250m funding round last year. That valuation would still make eToro one of the biggest floats on the London Stock Exchange this year, should it choose the LSE.

 

Mr Assia says the company is in an “active dialogue” about the right location for a float, adding that it would make sense to list where the business has the “highest support of the relevant investors”.

 

Its major investors include Japan’s SoftBank and US firms including Wellington, Third Point and Fidelity.

 

Mr Assia said: “We have been ready [to go public] since 2021. We always need to refresh IPO readiness, but I do think the company is at the size and scale to become a public company.”

 

Observers have blamed the waning appeal of the London stock market on low valuations in the UK compared to rival markets, low pay for executives of UK-listed companies and a reluctance by both British money managers and retail investors to buy British.

 

Mr Assia has built his business on the back of stock and cryptocurrency investment, appealing to retail investors in Britain.

 

However, he said many of eToro’s clients – particularly younger ones – wanted to invest in US stocks rather than British equities.

 

He said: “A lot of retail investors, younger generations, understand that they need to start educating themselves about the markets, investing in global markets, starting with the US.”

 

eToro enjoyed a surge in business during the “meme stocks” phenomenon in the pandemic. Speculators around the world bet on unloved companies fuelled by social media braggadocio and FOMO.

 

Despite concerns that the trend left young and inexperienced investors nursing losses, Mr Assia defended the meme stock phenomenon.

 

He said: “Young people are often interested in very volatile opportunities. We believe it is okay to try and capture those opportunities, as long as customers are understanding the risks they are taking.”

 

More recently, US technology stocks have enjoyed booming interest from amateur investors who have flocked to popular brands such as Tesla and Apple.

 

Conversely, the proportion of UK shares held by British individuals has fallen from 12pc in 2021 to 10.8pc in 2022, according to the Office for National Statistics.

 

The Government has been looking at ways to reinforce Britain’s capital markets and boost investment, with Chancellor Jeremy Hunt unveiling a series of reforms in his Mansion House speech last year.

 

eToro is planning to bolster its offering of London-listed stocks in the coming months, challenging the likes of Hargreaves Lansdown and AJ Bell. Currently, it offers around 300 UK stocks compared to several thousand across the Nasdaq and New York Stock Exchange.

 

Mr Assia said: “We are planning to add about 1,000 UK stocks in the coming weeks and expanding our relationship with the LSE for better execution.” He recently met with Julia Hoggett, the chief executive of the London Stock Exchange, to discuss the expansion.

 

eToro is also looking to boost its Isa offering and is receptive to the idea of a British Isa, proposed by Chancellor Jeremy Hunt, which would provide a £5,000 tax-free allowance to invest in UK stocks.

 

There are calls for the Chancellor to go further: investment advisers and brokers have suggested scrapping or reforming stamp duty on share transactions, currently a 0.5pc levy.

 

Mr Assia said: “It creates a disincentive to trade.”

 

Some of eToro’s other offerings are more speculative than simple shares. The Israeli business was quick to offer cryptocurrencies such as Bitcoin, and now provides a variety of the digital assets – many of which have little apparent utility.

 

In 2022, it bought an expensive Super Bowl advert at the so-called “crypto bowl” where companies including Coinbase, Crypto.com and the now bankrupt FTX splashed out on prime-time adverts.

 

The cryptocurrency industry has long attracted scrutiny amid fears it can be used for money laundering and that it is replete with scams. In a report published last week, it emerged the Financial Conduct Authority (FCA) opened 95 money-laundering cases last year against cryptocurrency businesses, out of a total of 375 investigations.

 

Unlike many cryptocurrency businesses, eToro is regulated in the UK under the FCA’s crypto asset regime. Mr Assia says the FCA represents the “gold standard” for cryptocurrency trading.

 

Founded in Tel Aviv in 2007 by Mr Assia and his brother, Ronen, eToro made profits of more than $100m last year on revenues of $630m.

 

Despite its Israeli origins, Mr Assia said he considered Britain and Europe to be eToro’s “home market”.

 

Israel’s tech sector, like the rest of the economy, has been rocked by the country’s war with Hamas. Workers have been called up to the military, while those staying behind have been forced to retreat to bomb shelters in between meetings.

 

Mr Assia, who lives in Israel, downplayed the impact on eToro.

 

He said: “We haven’t seen any impact to the day-to-day operations of the company. Roughly half our personnel are in Israel.

 

“We have always been prepared from coronavirus to work from home… We are actually required by all the various regulators to have disaster recovery sites and global systems, all of that has been in place.”

 

He added: “We still have a team of developers in Ukraine.”