eToro rated ‘Neutral' in initial coverage as execution, volatility remain key risks

UBS initiated coverage of eToro (ETOR) with a 'Neutral' rating and a $70 price target, citing the company's strong position to benefit from increasing global retail investor activity and its successful social-trading model. While UBS projects continued growth in funded accounts, driven by international expansion, the rating reflects concerns about eToro's heavy reliance on trading activity (68% of 2024 revenue) and exposure to market volatility, particularly in crypto (60% of 2024 net revenue growth); ETOR shares were up 8.4% to $75 following the report.

Analysis

UBS has initiated coverage on eToro Group Ltd (ETOR) with a 'Neutral' rating and a $70 price target, initially reflecting modest upside, although the stock subsequently traded up 8.4% to approximately $75 following the announcement. Analysts at UBS view eToro as well-positioned to benefit from the increasing global retail investor participation, particularly outside the United States, leveraging its social-trading model for expansion and engagement. The company has demonstrated robust growth, with funded accounts increasing at a 13% compound annual growth rate from under 2.5 million at the end of 2021 to almost 3.5 million by the end of 2024. UBS projects this growth to continue, with funded accounts expected to increase by 9.5% in 2025 and 10% in 2026, driven by international expansion and strong brand recognition, evidenced by a significant 4.5x return on investment from less than $100 million in marketing spend in 2019 over the past seven years. However, the 'Neutral' stance is underpinned by key risks, primarily eToro's substantial reliance on trading activity, which accounted for 68% of its 2024 revenue, making it heavily dependent on market conditions. Notably, the volatile crypto market was a significant growth engine, contributing almost 60% to eToro's over 40% year-over-year net revenue growth in 2024. UBS's $70 price target is predicated on 27 times estimated 2026 earnings per share of $2.60. This valuation multiple represents a discount to leading US brokerage platforms, which analysts suggest can only be narrowed if eToro demonstrates strong execution and achieves greater operational scale. UBS estimates that the stock is currently pricing in approximately 8% revenue growth over the next two years, presenting a 1:1 upside/downside skew.

Key Decisions for Investors

• Given eToro's stock surged to approximately $75, surpassing UBS's $70 price target alongside the 'Neutral' rating initiation, investors should exercise caution as the current price may already reflect near-term growth expectations and the 1:1 upside/downside risk profile highlighted by analysts.
• Investors should closely monitor eToro's ability to achieve its projected funded account growth (9.5% in 2025, 10% in 2026) and successfully execute its international expansion strategy, as these are critical factors for scaling the business and potentially justifying a valuation closer to its US peers.
• The company's significant revenue concentration in trading activities (68% of 2024 revenue) and its substantial reliance on the volatile crypto market for growth (contributing 60% to 2024's 40%+ net revenue increase) remain key risks requiring diligent monitoring for any signs of revenue diversification or changing market dynamics.