Seems like a decent Q1 for Selfwealth -- Since the start of July, the number of active traders (funded accounts) grew ~12%, and there was a ~21% lift in the number of trades executed.
Overall, that drove an 8% lift in operating revenue from the preceeding quarter (32% up from the last first quarter).
I'm not overly close to SWF, but at first there seems an odd mismatch between the growth in trades vs the growth in operating revenue, at least when comparing year-on-year and quarter-on-quarter periods.
EG. between Q4 FY21 and the quarter just ended, SWF grew the number of trades executed by 21%, and yet operating profit grew only 8%
But between Q1 last year and the first quarter just ended, the number of trades increased 15%, but operating revenue grew 32%
A bigger cash balance, and the associated interest income, helps, but they earn very little here. So i had a look at operating revenue per trade executed over each quarter, and this seems to at least partly explain the difference (see image below).
Given they have a flat brokerage model ($9.50 per trade), the increase in revenue per trade must largely come from the 60bp spread they charge on international brokerage, which was introduced around Q3 last year.
(I may have this wrong, so would appreciate it if anyone has a clearer insight).
Still, it's worth noting how much quarterly trade volumes can move around depending on the current market sentiment. In the last 5 quarters, there's a >60% difference between the least active and most active quarters in terms of average trade volumes per account -- which is fine, but shareholders should be aware for the potential of this to yield lumpy results. Of course, a growing number of active accounts helps mask this to some degree (in total terms, the difference between the most and least active quarters is 30% -- still a decent amount of variability, just not as much when is seen on a per account basis).
In any event, it's good that the company seems to be gaining market share without any reduction in brokerage charges, although like others i do wonder how long that can continue. It could take years, but with more and more entrants coming into this space, and all trying to undercut the others, i see players like SWF having to look for additional sources of revenue. The move into crypto could potentially help here, but it depends how they do this.
Also note that the company has dipped back into negative free cash flow as it invests for further growth following the $11m capital raise (incidentally, worth noting on the CF statement that there was a $640,000 cost to conduct their capital raise during the quarter -- a ~5.5% fee. Not that that is unusually egregious, but it's a very real cost of capital and a reminder why investment bankers love to encourage companies to raise!).
That being said, they are very well funded with $17.5m in cash and no debt, and the cash burn isnt material at present.
Overall, on a trailing 12m basis, SWF is trading on a P/S of roughly 4. Which isnt especially high if they can sustain the pace of top line growth and manage costs. I'm just mindful of the industry dynamics, both in regard to volatility of trade volumes and a structural move to lower margin brokerage.
Basically a brokerage service which offers a flat fee regardless of trade size ($9.50 per trade)
Also offers social features that allows users to see the portfolios and trades of members ($20 / month subscription)
