A purple patch for EasyEquities, the country’s most loved trading platform
It’s hard to imagine another South African brand that inspires as loyal and passionate a following as EasyEquities and its holding company, the Purple Group. This passion has translated into rapid growth in revenues and profits and an even faster rise in the share price. Purple’s share price has risen 159% in the past year and almost 900% in three years, prompting some to worry that the growth cannot be sustained. Business Maverick asked EasyEquities CEO Charles Savage the tough questions.
DM: You now have almost one million active retail accounts. When EasyEquities was launched in 2014, did you foresee this growth? What is the projected trajectory over the next five years?
Charles Savage: A million customers was our first target and funnily enough, we thought we’d get there sooner. Our next target is to double our customers and we think we will do that in 18 months — 4.5 million customers is the three to five-year goal. It’s not impossible… this is the economically active population that is holding up the country. But our responsibility is to leverage our distribution deals to reach every corner of the country. If we are going to democratise investing, we can’t leave anyone out.
What we did not expect was to achieve this level of trust in the time that we have. Out of the 750,000 active customers, 120,000 are also Purple Group shareholders. That very loyal EasyEquities tribe is one of the reasons we have been able to keep our new product marketing costs low.
DM: Who are your clients? And what is their average account size?
CS: Almost 95% of our clients are first-time investors, with an average age of 31. When we started, the average age was 35, and in our last financial year, the average age of new clients was 29, which is encouraging. Our gender split is 48% female, which is up from 15% when we launched. And the racial demographic is reflective of South Africa’s demographic profile. The average portfolio is about R35,000, with the median about a third of that. There is no other investment business that looks like this and that gives us a very long runway to build customers.
DM: Do you believe EE is changing South Africa’s saving and investment culture or is it feeding into the get-rich-quick mindset, often evident among those marketing themselves on Facebook as forex traders.
CS: There is always an element of the get rich quick mindset when it comes to financial services, but it’s a small portion of our clients — I’d say less than 1%. If you look at our client conversations on social media, they are measured… they are talking about long-term investments and staying the course. The data also backs up the idea that our clients are investing and not speculating.
We benchmarked ourselves against Robinhood (the US-based online, discount brokerage). Most of their customers turn their portfolios seven times a year. Ours are turning theirs once a year or less. We are an investment platform and right from the beginning have provided the products, services and education to support that. We steer away from the word, trading. And I can promise you, we will feel EasyEquities’ (among others) economic impact 100 years from now.
Look at markets where there has been a radical economic transition — Australia, for instance. They created a discipline around investing three decades ago, which is reaping rewards now. One day we will see the impact. It is not true that South Africans are bad savers. We had products that did not meet the market in their homes. Financial services were built for the wealthy and still are. We ensure that the R50 investor gets the same service as the R5,000 or R50,000 investor.
DM: Do you see any competition on the horizon?
CS: Our competitive moat is significant, and I say this without arrogance. There are three aspects to this: platform, distribution and community. We spent R2-million building our platform — that was eight years ago. Now we spend R4-million a month and do new functionality releases every week — that pace is hard to maintain.
On distribution, we have partnered with companies like Capitec, Discovery Bank and Telkom Pay, which gives us access to a significant customer base. That is hard to replicate.
And the last is our community, which is the hardest to replicate, and is where the real magic happens. How do you replicate the trust and love our investors, customers and staff have for the brand? That is the hardest part to compete with. That said, we are not asleep and we are watching the global market carefully.
African fintechs have raised a lot of money and they will all go into investment services at some point. To stay ahead we must continue with the same drive and pace.
DM: Purple Group has just released its half-year results, which saw group revenue increase by 36% to R137-million and profits by 114% to R17.7-million. EasyEquities grew revenue by 27.9% to R108.7-million and saw cost-per-customer decline. With this combination, you would expect profits to rise, yet they grew just 4.3% to R23.3-million. Why?
CS: The first element is client activity. During the Covid lockdowns, we saw much higher investment and trading activity. Customers turned their portfolios twice a year. Now that everyone is back at work, trading has returned to more normal levels, which means lower returns. So our income per customer has normalised.
A second factor is, if you go back to February 2020, we had 180,000 accounts. Today that number is nearly one million. The fact that 80% of our customers came in the last two years is significant because the economic value of a customer is the lowest in the first year. But the nature of investing means the value of the portfolio grows each year as the investor makes new contributions and because the market delivers a return.
As the economic value of a portfolio increases, so does the client value — it’s a percentage game. That is the piece we miss when looking at the income statement — this business has an annuity growth rate of 25%-30% year-on-year, and that is without adding one new customer.
To grow our profit meaningfully, we need to reduce the cost of servicing a customer from R160 a year to about R80, double our customer base and add new products and services.
DM: That sounds like a big ask. The Purple Group makes an annualised profit of about R36-million and it has a R3.5-billion market cap, which translates into a PE ratio of about 90. Clearly, your customers love you, but to justify that PE, the market is expecting that you double revenue and profits annually. Is this a business risk?
CS: Yes, 100% it’s a risk. But we have built up a track record of delivery over the last seven years. To continue we need to do three things: Do what we have been doing, while developing new distribution avenues. Develop new products. We have 10 new product lines signed off for the next three years. And last, we need to do this somewhere else, so we are taking our SA lessons and applying them in East Africa and the Philippines.
DM: There is more to EasyEquities than just share trading. You operate EasyProperties and now own 100% of EasyCrypto. How profitable are these two businesses and what does their growth trajectory look like?
CS: EasyCrypto contributed R4.5-million to profit after tax off R9.3-million in revenue. But remember, we earned our first 51% of EasyCrypto simply by achieving distribution targets and paid R60-million for the second 49%. We have not spent money on development or marketing, which is a significant advantage.
When it comes to EasyProperties, we hired the team, developed the legal framework and capability and built the technology. So, no, it’s not profitable… it’s only two years old. It will be profitable this time next year. And in five years it will look similar to EasyCrypto.
DM: What new products are in the pipeline? I hear there are about 10 planned?
CS: There are several, but not all are planned for this year. This year we will launch a crypto exchange within Easy Crypto — it’s live in beta as we speak. We’ll launch EasyLife, purpose-built life insurance for investors, and EasyCredit. This is credit that is secured by your assets, but where the loan-to-asset value is low. The cost of credit will be much lower than what you can source anywhere else — prime plus one or 1.5.
We also have EasyFX planned, which will tie in with our launch of EU and UK shares this month. We want money to move freely. But we need a licence and are hoping for this year. Our last one is EasyRetire. How do I retire and what do I need to do?
DM: Many people liken EasyEquities to Robinhood. Is that a fair comparison?
CS: Robinhood is a dressed-up trading destination. Look at the economics and the products and services — you cannot deny that. They are more akin to GT247. EasyEquities is a purpose-built investment platform designed to uplift the investment experience.
DM: What makes you get out of bed in the morning?
CS: We are deeply purposeful. We — or I — get out of bed to change people’s lives. Not to make profits… the profits will follow. DM/BM