The social online investment platform eToro will merge with a so-called SPAC at a corporate valuation of $10.4 billion, the company announced on Tuesday. After discounting eToro's cash reserves, the deal with FinTech Acquisition Corp V is worth $9.6 billion.
eToro will be raising $850 million through the merger, including $250 million from the SPAC and another $650 million from investors including Softbank, ION, Third Point, Fidelity and Wellington Management.
After the merger is approved, eToro will become a publicly traded company on NASDAQ.
SPACs, or special purpose acquisition companies, are shell companies that use proceeds from an IPO to take private firms public. FinTech Acquisition Corp V was founded by banking entrepreneur Betsy Cohen, who founded Jefferson Bank and Bancorp Inc.
eToro increased its valuation by more than fourfold over the past three months. The increased valuation is due to a jump in sales: eToro's revenues shot up 147% over the past year to $605 million, and the number of monthly trades on its platform increased from 8 million a month in 2019 to 27 million a month last year, and hit 75 million in January alone.
The company, whose investment platform operates like a social network, has more than 20 million users in 100 countries. One quarter joined over the past year, and 1.2 million joined in January alone.
eToro was founded in 2007 by brothers Yoni and Ronen Assia, along with Dudu Ring, who left the company in 2014 to found the startup Colu. Ronen Assia was eToro's VP-product until last year, when he joined Team8’s Fintech fund, and now is responsible for strategic partnerships at eToro and is also a board member.
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eToro lets users invest in a range of assets in various global markets, including stocks, commodities, currencies, ETNs, indexes and cryptocurrencies. Its main competitor is the investment platform Robinhood. eToro currently has more than 1,000 employees in 12 offices around the world, 700 of whom are in Israel.
"We developed eToro as part of a vision to make global markets open and accessible to everyone. Our users come to eToro to invest but also to make contact with other users, to consider, to follow and to copy successful investment strategies from around the world," said CEO Assia in a press release.
The company's platform lets users around the world hold, buy and sell assets, track their portfolios in real time, and copy top investors' investment portfolios. This last option - copying top investors - is what differentiates eToro from its competitors. With a click, a customer can copy the transactions of dozens of other users who the platform has termed "popular investors." eToro pays its popular investors commissions, and earns its own revenue from transaction fees.
eToro's fast revenue growth came after a disappointing year in 2019, when revenues declined by 34%. This came after the company's strong performance in 2017 and 2018 due to the cryptocurrency craze during those years.
In a recent forecast, the company stated that it expects revenues to increase by 68% this year, hitting $1.02 billion. It expects more modest growth of 17% next year, with annual growth settling at 30% by 2025 and annual revenue reaching $2.55 billion.
Last year eToro's EBITDA was $95 million. This year it forecasts it will drop to only $15 million, primarily due to a 84% increase in marketing and sales costs. The company expects its EBITDA to return to its previous level within two quarters, and says it will hit $104 million next year, or 10% of sales, and $700 million by 2025.
Bloomberg has stated that eToro may have trouble launching its investment copying option within the United States due to regulations governing investment advisers.