Selfwealth laser focused on profitability with transition away from ‘cheap’ brokerage model

Cash. It’s all about cash. And retail investors are playing safe by holding cash instead of equities as online brokerage company SelfWealth (ASX: SWF) progresses through a business transformation which has seen its growth slow, and profits fall. 

As previously acknowledged by SelfWealth, the surge of retail investors entering equity markets during the pandemic was not sustainable which has resulted in a drop off on trading volume. Previously offering low-cost brokerage through their online platform, these brokerage fees drove SelfWealth’s own shares to an all-time high of $0.75 in July 2020. 

Since then, SelfWealth has made it known to the market that they no longer intend to compete with other low cost brokers such as Stake which can offer brokerage for as little as $3 per trade, prompting a transformation in 2021 to become a wealth management platform, rather than a “cheap” broker. 

Revenue growth in FY22 slowed for SelfWealth to report $20.3 million which was 10% higher than the previous year but the impact on the bottom line was felt much harder with a $6.3 million net loss after tax, down on the previous year’s $600k loss. Beyond the fall in trading volumes, this was also attributed to investing in their own technology where they hope to recoup the rise in operating expenses from wealth management products that will be rolled out on the platform. 

“Over the past year, Selfwealth has been transitioning away from a ‘cheap’ ASX trading platform to a leading retail wealth management platform, with a clear purpose to encourage and empower people to achieve financial freedom,” said SelfWealth CEO, Cath Whitaker. 

“Selfwealth has a vision to be the leading wealth creation platform for retail investors, by giving them access to a growing number of international markets, asset classes and market insights, all on an intuitive, easy-to-use platform with an exceptional user experience.” 

While investors have been harbouring their assets in the safe haven of cash, those that have left that cash on the SelfWealth platform have been contributing to SelfWealth’s revenue where the Company accrues interest on cash held. As of 30 June 2022, customers had $736m of cash on the platform generating interest revenue for SelfWealth with interest rates rising in the background. 

Despite trading activating slowing on their platform, it may not be slowing as much as its rivals with SelfWealth moving up in the broker market to assume the #3 position in the market, overtaking a Big Four bank. 

SelfWealth is now at the halfway mark of their business transformation to become a wealth management platform, and expects to roll out a range of non-ASX equity products in the next 12 months to complete the transformation. 

These will include functionality to investors to trade cryptocurrency on the SelfWealth platform as well as access to Hong Kong equities, an enhanced investment education service and enhanced customer experience. 

According to Whitaker, the Company will “continue to have a laser focus on the ROI on our investment to ensure that we continue to progress on the pathway back to profitability.” 

SWF shares fell to a 52-week low of $0.135 in June 2022 but have since rebounded to have last closed at $0.20. The Company has a cash balance of $11.5m in its own bank account having last raised capital in August 2021 when securing $11.7m at an Offer Price of $0.39 per share.