EasyEquities’ big cost problem

Daily Investor • 16 May 2023

Purple Group’s latest financial results revealed a big challenge: The operating cost per EasyEquities account is growing faster than the revenue per account.

Purple Group’s financial results for the six months ended 28 February 2023 showed that EasyEquities is struggling to contain expenses.

The standout figure was the net loss of R10.6 million over the reporting period, a huge negative swing from the previous net profit of R17.7 million.

One of the main reasons is the rising cost of servicing EasyEquities clients. The revenue per active account decreased while the operating cost per account increased.

For a second consecutive half-year period, EasyEquities’ operating expenses, including depreciation, is exceeding its revenue.

It is because expenses increased by 79% while revenue only increased by 13% on a year-on-year basis.

In H1 2022, revenue exceeded operating expenses and depreciation by R27 million. Since then, there has been a steady decline to the negative R20 million today.

Put another way, the revenue per active account decreased by 6% over the last twelve months while the cost per active account grew by 47%.

Since the end of 2022, the cost per active EasyEquities account has exceeded the revenue, and the gap is widening.

It substantiates the concern expressed by 36ONE Asset Management CEO Cy Jacobs that the cost of administration of so many clients is not trivial.

Another worry for EasyEquities is that the platform’s early adopters were typically investment enthusiasts who had more money and were more active traders.

As the platform matured, it started signing up people with less disposable cash and trading less. This resulted in a decline in average revenue per active account.