Plus500 hits its target – $1 billion valuation

Insiders to sell $170M of Plus500 shares. IPO benefits: higher volumes, but also lower client acquisition costs.

When we wrote back in December that Plus500 (LON:PLUS) CEO Gal Haber was targeting a billion dollar valuation for his newly public company, we did so with a certain amount of skepticism. After all, industry leader FXCM’s valuation is about $1.5 billion. Gain Capital, which runs the brand and which recently acquired GFT is valued by the stock market at about $375 million – and that after more than doubling in value since early last year.

Well it seems as though investors aren’t quite as skeptical as us.

After seeing its share price rising by (another) 5% on Wednesday, hitting an all-time high of £5.70 per share before closing at £5.26 (the Plus500 IPO was done at £1.15 per share last July), Plus500’s market value is now officially £604 million – or $1.01 billion. Mission accomplished.

And not surprisingly, Plus500’s management and shareholders have taken the opportunity to propose a secondary sale of 20 million shares, with Liberum Capital acting as sole bookrunner.

So what is driving Plus500’s valuation?

Plus500 CAC Plus500 new customers

You never know with the stock market, and this could certainly be a ‘momentum play’ in a bull market. But looking deeper at Plus500’s Q4 results we can see the benefit to a forex broker of being a public company.

Plus500 saw its revenues skyrocket to $50 million in its first full quarter as a public company, more than doubling its previous best-ever quarter. But it didn’t do so by taking its IPO proceeds and throwing them wildly at marketing and customer acquisition. Quite the opposite. Even as its volumes and revenues ramped up, Plus500 saw its average customer acquisition cost DROP significantly.

Plus500 reported that in Q4 its average customer acquisition cost (‘CAC’) fell to just $542 — well below industry standards, especially given that Plus500’s largest market is the (very) expensive-to-acquire UK market. That compares to Plus500’s own CAC of around $630 during most of 2013 and 2013.

Apparently, all other things being equal, it is much easier and cheaper to acquire new (and larger) clients when you are a publicly traded company. With Plus500 being a relatively lean operation — we understand that they have under 100 employees, as compared to 150+ for most other brokers of their size — they are very focused on having customers self-convert, with minimal salesperson involvement. Being public, that is a much easier sale now when the company can say “Hey, we’re listed on the London Stock Exchange, of course you should trade with us.”. 

So which retail forex broker is in line next for an IPO? Stay tuned to LeapRate…

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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