Summary eToro Group (ETOR) upgraded to buy as US traction accelerates and the social investing model proves portable and resilient. ETOR’s AUM reached a record $20.8B (up 76% y/y), with total funded accounts growing 16% y/y, signaling strong ecosystem stickiness. Crypto revenue diversification has reduced earnings fragility, with Q3 net contribution up to $129M and crypto asset revenue surging 229% y/y. Valuation has compressed to 13x forward PE, supported by a $150M buyback (~5% of market cap), presenting an attractive entry point. Investment action I had a hold rating for eToro Group ( ETOR ) previously, as I thought the valuation was not attractive, especially considering the volatile earnings profile from its crypto exposure and competitive landscape. Since then, the setup has changed. The stock has derated materially, while fundamentals have improved, and ETOR has directly addressed my earlier concerns. US traction is showing, the ecosystem looks stickier than expected, and the earnings profile is proving more resilient. I upgrade my rating to buy. US Expansion and Ecosystem Stickiness In my earlier work on ETOR, the main bullish argument I made was that its social investing model was differentiated, but I also questioned whether it would work given the heavy competitive landscape. This model worked well in Europe, but I wasn’t sure it could work in the US. Specifically, I was worried whether ETOR could monetize this model in a market dominated by Interactive Brokers ( IBKR ) and Robinhood ( HOOD ). What changed my view isn’t just that growth is actually happening, but how it’s happening. We have hard data points to anchor the narrative. In the Q3 call, management confirmed that new funded accounts in the US year-to-date have already exceeded the total for all of FY2024. That effectively dismissed my worry that ETOR cannot gain traction in the face of IBKR and HOOD competition. It validates the model’s ability to funnel in users and eventually convert them into funded accounts. It sure does seem like the rollout of CopyTrading in the US, paired with a broader crypto offering, has given ETOR an “edge” to capture a part of the market. While we do not know the engagement metrics split by region, we can get a good sense that things are going very well on an overall basis. The first metric to track is Assets Under Administration [AUM], which has reached a record of $20.8 billion, up 76% y/y. But the real focus is the sequential increase. In Q2, it was up $2.7 billion sequentially, but in Q3, it was up $3.3 billion. The second metric is total funded accounts, which grew 16% y/y. It suggests more people are coming into the platform, and they are putting more capital into it (delta between AUM and funded accounts). In my view, this data definitively proves that the social investing moat is portable (can work in other regions) and also that the US market can be penetrated (this helps with the long-term growth narrative). The "Crypto Winter" Hedge One of the main reasons for my hold rating in July was earnings volatility. My fear was that ETOR dependence on trading activity (especially crypto) made results hard to forecast and would expose the business to sharp drawdowns if another crypto winter hit. I still believe that concern was reasonable at the time, but ETOR has proved me wrong. The Q3 data showed strength on this front. While revenue from equities and commodities was weak due to market volatility, and if it were a traditional brokerage, ETOR would have delivered a poor set of results, But no, ETOR saw net contribution (crypto + Equities + Commodities + Currencies) grow to $129 million, primarily driven by a 229% y/y increase in crypto asset revenue. Unlike what I thought about crypto being a weakness, it actually helped with diversification. This dynamic really changed my mind. I now believe that ETOR’s revenue stream is less fragile than I initially thought. The right framing should be that ETOR isn’t exposed to a volatile asset class, but that it benefits from whichever asset class is attractive at a given time. I think there is a “moat” element in here that makes this possible. While other brokers like IBKR and HOOD also allow trading of crypto and stocks on the same platform, the decision-making process for users is different. On a standard brokerage app, a user must independently decide to stop trading a stock (say, Nvidia) and start trading crypto (say, Bitcoin), and for most retail investors, they have no idea which crypto to buy (or which stock to sell). This often leads to inaction. On ETOR, that decision is often outsourced because the investors may be copying a "popular investor," and when that investor rotates their portfolio from stocks to crypto, the user’s capital moves automatically (i.e., the trade happens). Valuation Bloomberg I previously noted that at 25x forward PE, ETOR was not cheap, in that the valuation already reflected a lot of good news, leaving little margin for error. Things have changed today. Despite the positive points discussed above (US traction and a diversified model that works), ETOR’s multiple has compressed down to just 13x as of the time of writing. This is also despite consensus upgrading their earnings estimates substantially, suggesting that the overall market is still not catching up on the positive developments ETOR has shown, and I think this gives investors a good entry point. The capital return story adds another layer of positive to the ETOR equity story. In the latest earnings, management announced a $150 million share repurchase program, which is ~5% of current market cap. Beyond the yield, the importance of this buyback is that it tells the market management believes the stock is undervalued, and that serves as a valuation floor. On a relative basis, ETOR still trades at a substantial discount to IBKR and HOOD, which are at 27x and 46x, respectively. If ETOR can continue to show resilient growth and continue penetrating the US market, growth should accelerate, and I expect this relative multiple gap to close. Risk There are risks to consider. For instance, the 44% growth in net interest income is likely turning into a headwind as central banks cut rates, which could drag down near-term earnings that make the headline look bad. Also, a mix shift toward lower-margin equity trading caused core non-crypto revenue to decline 21% y/y in Q3, which could continue if derivative volumes do not recover. Finally, the US bull case relies on securing an RIA license by 1H 2026 to fully monetize the "Popular Investor" program. Regulatory delays there could delay this growth catalyst. Conclusion I give a buy rating. My previous concerns have largely been resolved. ETOR is showing that its social investing model can scale and that crypto acts as a diversification rather than a liability. With the stock now trading at a much cheaper multiple, supported by a $150 million buyback, I see a favorable setup.
