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Online trading platform eToro reportedly planning IPO at $5b valuation

Israel-based fintech firm has seen high growth during pandemic, but has also come under scrutiny for allegedly marketing high-risk instruments to inexperienced investors

Illustrative: Investors check stock prices on their mobile phones near a display of the stock market index at a brokerage in Beijing on Wednesday, June 12, 2019. (AP/Ng Han Guan)
Illustrative: Investors check stock prices on their mobile phones near a display of the stock market index at a brokerage in Beijing on Wednesday, June 12, 2019. (AP/Ng Han Guan)

Israeli fintech firm eToro is reportedly planning to hold an initial public offering of shares on the Nasdaq stock exchange at a valuation of $5 billion in the second quarter of 2021.

The Israel-based online trading platform allows customers to trade in stocks, currencies, commodities and cryptocurrencies as well as derivatives of such assets.

The firm has added 5 million new users this year, bringing the total number of registered users to some 17 million, with its revenues tripling to $500 million, according to the Calcalist financial website, which first reported on the IPO on Monday.

CEO Yonatan Assia said in an interview in September that eToro had experienced significant growth during the coronavirus crisis.

However, the company, which employs 700 people in Israel and 400 elsewhere, has come under scrutiny from regulators and journalists in Australia and the UK in recent months. Questions have arisen regarding precisely how eToro earns its money and whether its products are too risky for the Millenial and Generation Z investors who appear to be flocking to its trading platform in response to aggressive advertising.

A December 6 report in The Australian said the company was being looked at by the Australian Securities & Investments Commission (ASIC) after it recorded a 480% rise in Australian users this year.

It’s also come under fire for offering a high-risk financial instrument known as a CFD, or contract for difference, in which traders agree to pay the difference between the current value of an asset and its value at the close of the contract. There is no purchasing of the underlying asset, though eToro limits potential losses on CFD trades.

A spokesperson for eToro said in a statement that the average age of users was 37 and that it had protections built in to limit inexperienced traders’ access to CFDs and other instruments.

“eToro has a responsible investing policy and we encourage our investors to think about long-term strategies, to understand what they are investing in, diversify where possible and only invest amounts they are prepared to lose,” the statement read.

The spokesperson declined to comment on the IPO report.

Screenshot of the eToro OpenBook platform (Photo credit: Courtesy)
Screenshot of the eToro OpenBook platform (Photo credit: Courtesy)

With the share sale, eToro will be following a string of other Israeli firms that are reportedly seeking to hold IPOs in the US, including Outbrain, Taboola, OrCam, Monday.com and IronSource, as tech firms are hoping to get surging valuations as stock markets boom and as the coronavirus pandemic has citizens globally turning to all things digital.

According to Calcalist, eToro may be considering a merger into a shell company, which would speed up the process of getting it listed on Wall Street.

The company was founded in 2007 by Israeli brothers Yonatan and Ronen Assia as well as David Ring. It billed itself as a forex trading platform that would “democratize” financial trading by making it more gamelike.

The firm has raised to date $164.4 million from investors including Korea Investment Partners, China Minsheng Financial, Russia’s Sberbank, holding firm SBI Holdings and online trading solutions firm World Wide Invest, according to the database of Start-Up Nation Central.

Over the years, eToro has sought to differentiate itself from other online trading companies in Israel, a preponderance of which have either been fraudulent binary options or forex companies. Unlike many Israeli binary options and forex companies, eToro does not hide the identities of its owners or employees. Nor does it prevent investors from withdrawing funds in their accounts.

The binary options industry flourished in Israel for a decade before it was outlawed via Knesset legislation in October 2017, largely as a result of investigative reporting by The Times of Israel that began with a March 2016 article entitled “The wolves of Tel Aviv.

EToro was one of several firms to successfully lobby to have firms offering forex and CFD removed from the legislation.

Though based in Israel, the company is licensed in Cyprus and a UK version of the site is licensed by the British FCA.

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