The financial world has seen significant volatility and transformation over the past several years, with some sectors experiencing steady growth.
Equities and crypto / digital assets markets, in particular, have seen a considerable surge, attracting a new generation of investors eager to capitalize on these market dynamics.
In the midst of these developments, the FT reported thatIsraeli-based online trading platform eToro has made key moves, confidentially filing for a U.S. initial public offering (IPO) with aspirations of achieving a valuation of over $5 billion.
But what does this mean for eToro’s future, and how does it measure up against rivals like Robinhood and Coinbase?
The backdrop to eToro’s IPO plans is the ongoing boom in equity markets and cryptocurrencies, both of which have benefited from a confluence of political and economic factors.
Notably, the surge in Bitcoin prices following Donald Trump‘s election victory and a crypto-friendly Republican Congress in November 2016 helped drive massive interest in cryptocurrency, a trend that has only accelerated in recent years.
This bullish sentiment is evident in the performance of market competitors. Robinhood Markets, known for its commission-free trading, and Coinbase, a major cryptocurrency exchange, have both seen their stock prices surge.
In particular, Coinbase has more than doubled in value over the past year, while Robinhood has posted a nearly 340% increase.
Such gains underscore the growing appetite for platforms that make it easier to access both traditional equities and alternative investments such as Bitcoin and cryptocurrency.
While eToro is recognized in Europe, particularly in the UK, its presence in the U.S. is modest compared to its competitors.
The company offers commission-free trading on stocks, similar to Robinhood, and also facilitates trading in cryptocurrencies and fractional shares.
However, eToro aims to differentiate itself by avoiding the practice of selling customer orders to market makers, a controversial practice that has generated significant attention and regulatory scrutiny for Robinhood.
Instead of relying on payment for order flow (PFOF), eToro generates most of its revenue from bid-ask spreads—the difference between the buying and selling prices on trades conducted via its platform.
This business model arguably positions eToro as a more transparent, if somewhat less profitable, competitor in the online trading space.
In contrast, Robinhood and Coinbase have demonstrated substantial profitability and a significant rise in market capitalization, with Robinhood valued at $43 billion and Coinbase at $74 billion as of late 2024.
eToro, by comparison, reported revenue of $639 million for 2023, roughly a third of Robinhood’s and a fifth of Coinbase’s.
The company also faced challenges in sustaining its growth momentum.
While the number of funded accounts increased marginally to 3 million by the end of 2023, overall revenue remained relatively flat compared to 2022, and it was significantly lower than the peak levels seen in 2021.
This stagnation reflects broader struggles within the company to replicate the steady growth of its American counterparts.
Given its more modest revenue and slower growth trajectory, eToro’s $5 billion valuation in its upcoming IPO is a reflection of the company’s attempt to recalibrate its expectations.
This valuation is about half of what eToro initially sought in 2021, when it had ambitions of going public through a $10.4 billion SPAC deal—an attempt that was ultimately abandoned.
A $5 billion valuation would place eToro at approximately 43 times its adjusted 2023 EBITDA (earnings before interest, taxes, depreciation, and amortization).
In comparison, Robinhood and Coinbase are trading at around 78 times their respective EBITDA multiples.
This difference in valuation multiples highlights how eToro is perceived by investors relative to its more established competitors.
The market’s preference for platforms like Robinhood and Coinbase, with their higher growth trajectories and more substantial revenues, underscores the challenges eToro faces in distinguishing itself within a fairly crowded marketplace.
Even as equities and cryptocurrency markets continue to boom, the prospects for a successful IPO for eToro will depend heavily on how well it can navigate the competitive landscape and prove its long-term viability.
Despite the excitement surrounding the IPO market in 2024, there are no guarantees that eToro will receive the valuation or investor reception it desires.
The volatility and unpredictability of financial markets, particularly cryptocurrency, create inherent risks for platforms like eToro that rely heavily on trading volume and market sentiment.
Moreover, eToro’s relatively slow growth and struggle to maintain consistent revenue increases suggest that its business model may not be as scalable or sustainable as that of competitors like Robinhood or Coinbase.
While eToro’s decision to focus on bid-ask spreads instead of PFOF is a strength in terms of transparency, it may limit its potential to generate the same level of revenue from high-frequency trading as Robinhood does.
Another factor that could impact eToro’s IPO prospects is the competitive landscape.
While they’ve encountered their own unique challenges over the years, Robinhood and Coinbase have already established themselves as dominant players in the U.S. market, with robust user bases and a strong brand presence. And the Trump Administration is likely to introduce business-friendly policies that will be more supportive of innovation in the United States.
Meanwhile, eToro’s commission-free trading and cryptocurrency offerings are attractive. But it remains to be seen whether the platform can significantly increase its U.S. market share and replicate the success of its rivals.