EasyEquities sitting on a goldmine

Purple Group CEO Charles Savage said EasyEquities is sitting on a goldmine with its rapidly growing customer base set to add around R100 million in profit within the next few years.

EasyEquities is an online share investing platform with two shareholders – Purple Group with 70% and Sanlam with 30%.

It is Purple Group’s most valuable asset and produced impressive results over the last financial year.

Registered clients increased by 41% to 1.65 million and active clients increased by 50.4% to 763,233. EasyProperties and EasyCrypto clients also showed strong growth.

EasyEquities revenue increased by 24.2% to R214 million and retail inflows increased by 7.4% to R9.0 billion.

Despite the higher revenue, profit before fair value adjustments and tax decreased by 34.7% to R34.4 million from the previous R48.1 million.

The low profit resulted from significantly higher operating expenses and slightly higher commissions and research expenses.

The market did not like the slower growth and profit decline, and the Purple Group share price got punished.

Since 2016, EasyEquities has never recorded annual revenue growth below 65%. However, in the 2022 financial year, it only managed to increase its revenue by 24%.

Despite the market’s reaction, Savage congratulated his team for an excellent performance over the last year.

His comments raised a few eyebrows, but he had good reason to believe that the market reaction was not in line with their results.

The Purple Group CEO explained that the company is sitting with R100 million profit per year in its income statement.

The data around EasyEquities’ cohorts from 2014 to today – the group of clients that sign up each year – reveal that it takes between two and three years for a group to become profitable.

All EasyEquities’ cohorts from 2014 to 2019, accounting for 250,000 of the 750,000 active clients, are profitable.

It also means, in simple terms, that the 250,000 active customers who registered between 2014 and 2019 create all the profit for the EasyEquities group.

2020, 2021, and 2022 cohorts – 500,000 active customers – are not yet profitable and are basically subsidised by the 250,000 profitable customers.

“We are currently delivering a profit on a third of our customer base,” Savage explained.

He added that, after three years, the least profitable cohort group generates R200 per year per customer.

If you fast forward two years and use historical values as a guide, the 500,000 loss-making clients can potentially generate R200 profit per year per customer.

“That equates to R100 million of profit per year that sits inside EasyEquities’ income statement,” said Savage.

He highlighted that it takes time for a cohort to “mature” as the clients need to bring their assets on board and start trading.

Another factor which may slow down the period until profitability is the recessionary pressures in South Africa.

“The recessionary pressure means it may take longer than previous years because there is no doubt that people have less capital and disposable income to invest,” he said.

However, recessions don’t last long, and when the tide turns, it turns fast.

“I believe we are about twelve months into a recession, and we have another twelve to eighteen months to go. Beyond that, those customers will turn profitable,” Savage said.

EasyEquities will sign up more customers during this period, further improving the company’s outlook.

The growing customer base and the predictable profitability make Savage positive about Purple Group and EasyEquities’ prospects.

“The future of the group has never looked better,” Savage said.