Online brokerage eToro to go public via SPAC

With pressures on Robinhood, eToro’s large user base and scale places the U.K.-based challenger front and center to disrupt the U.S. market.

Commission-free trading and social networking app eToro announced plans Tuesday to go public via a merger with a blank-check firm set to value the combined company at about $10.4 billion.

EToro is slated to merge with special purpose acquisition company FinTech Acquisition Corp. V, which is led by Betsy Cohen, one of the prominent businesswomen who have joined the SPAC frenzy.

“As a pioneer in the evolution of SPACs, Fintech Masala, our sponsor platform, seeks out companies with outsized growth, effective controls and excellent management teams,” said Cohen, chairman of the board of directors of FinTech V, in a statement. “EToro meets all three of these criteria.”

Once the transaction closes, the combined company will operate as eToro Group Ltd. and is expected to be listed on NASDAQ.

The companies are raising about $650 million in equity to support the deal including investments from ION Investment Group, Softbank Vision Fund 2, Third Point LLC, Fidelity Management & Research Company LLC, and Wellington Management.

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EToro, founded in Israel in 2007, has been on a major growth trajectory since the pandemic forced shelter-in-place orders a year ago. The fintech added over 1.2 million new registered users and executed more than 75 million trades in January alone. The app currently has over 20 million registered users across 100 countries. The global platform is regulated in the U.K., Europe, Australia, the U.S. and Gibraltar.

EToro launched crypto and social trading in the U.S. after receiving approval from the Financial Industry Regulatory Authority Inc. for a broker-dealer license in 2019. EToro plans to launch equity trading in the U.S. in the second half of 2021, according to the announcement, but currently only offers access to crypto assets and social trading in the U.S.

Social trading is a form of investing that allows users to observe the trading behavior of expert traders to copy or mirror their trading.

The social investment network offers its international users a choice of which assets to invest in from commission-free fractional equities, exchange-traded funds, commodities, currencies and crypto assets.

One of the biggest differentiators of the platform is the social networking feature, which is designed to enable users to choose their own adventure between trading directly themselves, invest in a smart portfolio, or replicate the investment strategy of successful investors on the platform at no extra cost.

“EToro is a pioneer in the social trading space, allowing investors to mirror the trades of their most successful peers,” said Javelin Strategy’s head of wealth management William Trout. “It’s an approach that neatly captures the zeitgeist. Social media-driven community functions as an amplifier, not as an echo chamber, and gives successful amateur traders a voice in a noisy ecosystem.”

With regulatory and other pressures on Robinhood rising, eToro’s large user base and international scale places the U.K.-based challenger front and center to disrupt the U.S. market in a way that other apps like Webull and Public have not, said Trout.

In fact, now is the time for competing fintech apps to expand and take on Robinhood, which has reigned king of free-trading, said David Goldstone, head of research for Backend Benchmarking.

For example, M1 Finance’s growth over the past year is evidence that there is room for trading apps other than Robinhood to attract new-to-investing customers and the ability for innovative trading platforms to win customers from established firms.

“As free trading apps and robo-advisers lower the barriers of entry for investors combined with a general trend of individuals becoming more engaged in investing, the market of individual investors is expanding,” Goldstone said. “These macro trends represent a real opportunity for a well-funded fintech to enter the market and succeed.”

EToro’s access to cryptocurrency is also a competitive advantage for the app, said Sophie Schmitt, senior analyst with Aite Group.

“An Aite Group survey of 2,199 U.S. consumers at least 18 years of age, and who make at least one transfer per year between accounts at different financial institutions, shows that 26% of Gen Z and 24% of young millennials own cryptocurrencies versus 14% of Gen X and less than 5% of boomers,” she said.

Still, in order for eToro to take over the online brokerage world, the fintech will need to complement its trading offers with other, longer-term, less risky investments to appeal to the mainstream investor with assets.

“This is what Fidelity, Schwab do well — offer a comprehensive suite of products to appeal to different types of investors,” Schmitt said.