AFR Article on Freetrade (and Pearler) below, lots of broker...

AFR Article on Freetrade (and Pearler) below, lots of broker platforms coming out of the woodwork. Going to test whether SWF has competitive advantage.

I think their product is currently adequately featured, differentiated and priced to continue attracting a solid share of the market (like 10-15%) and I think users are sticky and loyal enough to be retained and continue growing at a slower rate over the longer term (after they've captured their 10-15% target market), especially if SWF continue to consistently improve UI and value adding features.

In terms of "what is the next big thing?" I dont think there needs to be a next big thing, I think there are 100 small things that traders want which Selfwealth will list based on priority and begin working through once the new apps are live. Maybe there will be some bigger things that need a certain level of scale to justify such as margin lending and live pricing but these are less software development related and more business decisions that need to be executed at the right time.

In terms of being able to make $15m to justify the market cap, this is a good point. Losses fell from 65% of revenues in 1H20 to 23% 2H20 to 5% of revenues 1H21 and we have multiple known catalysts for further gross profit margin expansion in CY2021. With higher than historical expected revenue growth, profitability is undeniably coming, then we will start to get a better picture of future cashflows. I could see us hitting $2m profit in FY22 and maybe something like $6m FY23? I haven't done a detailed analysis of future cashflow yet and would be interested in anybody else's educated guesses. More scale is going to lower product manufacturing and operating costs as a % of revenue and other costs are mostly fixed, software development can be increased and our scale vs any other budget Australian broker is then going to become a big advantage. The reason all the competitors are popping up is that they see there is easy profits being made but nobody seems to be interested in using the SelfWealth model with $10 fees paying for a set of features that can compete with the banks' broker platforms. So far SWF have proved they can continue gaining market share throughout the year regardless of this increasing competition, that will need to continue to be the case if we are going to justify this market cap.

"London-headquartered online broker Freetrade will launch in Australia to capitalise on burgeoning demand for low-cost trading and an emerging backlash against riskier peers like US-based Robinhood.

The four-year-old fintech will open an office in Brisbane and provide an alternative in the rapidly growing market for investment platforms once dominated by the big four banks.“We were attracted to Australia for two reasons,” chief executive and co-founder Adam Dodds told The Australian Financial Review.“

First, it allows us to tap into the deep pool of engineering talent in Australia and enable round-the-clock software development. Second, as we kick-off our global expansion, Australia is the logical choice for a regional hub from which we can further push into south Asian markets.

”The entry of a new player comes amid startling customer growth for investing platforms during the pandemic. Commonwealth Bank announced last week that more than 230,000 new accounts were opened to trade stocks on its veteran platform CommSec or through its Pocket app over the half-year, while US share trading platform Stake has hit 300,000 customers, up from 100,000 in June last year.

Freetrade, which has 550,000 European customers, will provide access to ASX-listed stocks and funds alongside US and European markets.

The fintech has not yet released its rate card for Australian users but has positioned itself as part of the “commission-free” movement pioneered by the likes of Robinhood. It charges a Spotify-style subscription fee rather than a commission on each trade.

In the UK it charges £3 ($5.40) a month for a basic share trading account and £9.99 a month for a premium version of the platform with a much wider menu of stocks and investment choices and more advanced order types. It makes money by charging a 45 basis point fee on transactions in shares in a foreign currency.

But while it shares Robinhood’s commitment to low-cost trading, Freetrade differs from many of its peers in that it wants to actively encourage responsible, long-term investing by its customers.

Freetrade founder Adam Dodds is encouraging long-term investing. “We take the duties we owe to our customers incredibly seriously. At the end of the day, we are trying to build a product that helps our customers to achieve better financial outcomes,” said Mr Dodds, a former auditor at big four consultancy KPMG in London and Vancouver, Canada.

It does not allow trades in complex derivatives or leveraged products such as contracts for difference.

Advertisement“In our view, these products serve little purpose in long-term portfolios, encourage speculative behaviour, and can result in significant losses,” Mr Dodds said.

It also does not generate revenue from customer data, such as selling orders to market makers in what is known as payment order flow – a key but controversial revenue stream among some of the most popular trading platforms.

To that end, Freetrade is one of the fintechs that reject the view that investment platforms should remain agnostic about the investments their customers choose.

Robinhood, for example, is under investigation in the US state of Massachusetts for allegedly targeting vulnerable customers and encouraging riskier trading activity.

Earlier this month the Financial Review reported that Pearler, an Australian-born platform describing itself as the “anti-Robinhood”, would open to the public after four months of beta testing.

Pearler does not allow features such as pricing charts, profit/loss standings or at-limit orders, which its founder described as gimmicks.