Embattled online share trading platform SelfWealth (ASX: SWF) is bracing for further declines in their customer activity flagging the recent downturn as the “new normal” after huge increases in retail trading activity while Australians were locked up at home throughout the pandemic.
The March quarter represented SelfWealth’s first post-lockdown quarter with lower trading numbers across their online platform where a large segment of their customers cashed out of their investments and ceased trading on the platform. This resulted in a 22% increase in SelfWealth’s cash balance on the platform at $744 million of stagnant cash. Although stagnant, the Company still accrues interest on these funds which are not passed back to the customer – a common source of revenue for wealth platforms known as ‘cash spread’.
Unlike other larger platforms whose cash balances are substantially higher, SelfWealth is still reliant on trading activity from which it earns $9.50 in revenue for each trade processed.
While operating cash flow improved by $600k for the March quarter, net outflows were $1.8 million, taking their YTD outflows to $5.2 million.
This resulted from SelfWealth processing 380,029 trades for the March quarter a 26% decline on the previous March quarter, and 10% decline on the December quarter.
Frustratingly for SWF shareholders, this ‘new normal’ coincides with a barrage of competition that has started cannibalising SelfWealth’s customer base with the launch of rival low-cost online brokers such as Stake and Tiger Brokers launching major marketing campaigns to undercut SelfWealth by offering brokerage at $3 and $5 per trade respectively.
Acknowledging that the current business model is not sustainable, SelfWealth has been undergoing a transformation strategy to extend their brokerage services into international markets and cryptocurrency.
“SelfWealth is halfway through its 18-month transformation program to build a leading retail wealth creation platform. We have attracted top technology and marketing talent, and our focus is now on increasing deployment velocity,” said SelfWealth Managing Director, Cath Whitaker.
“We are future-proofing SelfWealth by creating a market-leading wealth management platform for retail investors. We are not engaged in the race to the bottom. Instead, we are building a sustainable business model, where savvy retail investors can trust that their cash and equities are safe.”
Unable to compete in the “race to the bottom” for brokerage fees referenced by Whitaker, SelfWealth is attempting to retain customers via the new trading markets as well as education and content. This has included their new YouTube channel where they offer weekly sessions to engage with customers and offer video interviews with top fund managers for investment ideas.
In addition to those trading ideas, the Company has launched its Big Swinging Stocks podcast which had its initial two episodes ranked in the top three Australian business podcasts by Spotify.
Although SelfWealth is still some distance away from being cash flow positive, the Company estimates they have two years of funding available in their $13.1m cash balance.
The Company expects to launch its crypto trading services before the end of June 2022 which will be an industry-first with Australian investors able to trade shares and cryptocurrencies from the single SelfWealth mobile app or website.
Alfred Chan is an Analyst at Emerald Financial, specialising in ASX-listed small cap companies.
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