A purple patch for EasyEquities, the most…
PM: You now have nearly one million active retail accounts. When you launched EasyEquities in 2014, did you foresee this growth? What is the projected trajectory over the next five years?
Charles Savage: One million customers was our first target and curiously, we thought we would get there sooner. Our next goal is to double our customers and we expect to achieve this in 18 months – 4.5 million customers is the three to five year target. It’s not impossible…it’s the working population that holds the country together. But our responsibility is to leverage our distribution deals to reach every corner of the country. If we want to democratize investing, we cannot leave anyone behind.
What we didn’t expect was to achieve this level of confidence in the time we have. Of the 750,000 active customers, 120,000 are also shareholders of Purple Group. This very loyal tribe of EasyEquities is one of the reasons we have been able to keep our costs of bringing new products to market low.
PM: Who are your clients ? And what is their average account size?
CS: Nearly 95% of our clients are first-time investors, with an average age of 31. When we started, the average age was 35, and during our last exercise, the average age of new clients was 29, which is encouraging. Our gender breakdown is 48% women, up from 15% when we launched. And the racial demographics reflect the demographic profile of South Africa. The average wallet is around R35,000, with the median being around a third of that amount. There is no other investment firm like this one that gives us a very long track to build clients.
PM: Do you believe that EE is changing the culture of saving and investing in South Africa or is it fueling the get-rich-quick mindset often evident in those who present on Facebook as forex traders?
CS: There’s always an element of the get-rich-quick mindset when it comes to financial services, but that’s a small portion of our clients — I’d say less than 1%. If you look at our conversations with our clients on social media, they’re measured…they’re about long-term investments and staying the course. The data also supports the idea that our clients invest, not speculate.
We compared ourselves to Robinhood (the US-based online discount brokerage). Most of their clients renew their wallets seven times a year. Ours turn theirs once a year or less. We are an investment platform and from the start we have provided the products, services and training to support this. We are moving away from the word, trading. And I can promise you that we will feel the economic impact of EasyEquities (among others) 100 years from now.
Look at markets where there has been a dramatic economic transition – Australia, for example. They created a discipline around investing three decades ago that is now reaping rewards. One day we will see the impact. It is not true that South Africans are bad savers. We had products that did not correspond to the market there. Financial services were designed for the wealthy and still are. We ensure that the R50 investor will get the same service as the R5,000 or R50,000 investor.
PM: Do you see competition on the horizon?
CS: Our competitive moat is important, and I say that without arrogance. There are three aspects to this: the platform, the distribution and the community. We spent 2 million rand to build our platform, that was eight years ago. Now we’re spending R4 million a month and releasing new features every week – that pace is hard to keep up.
Regarding distribution, we have established partnerships with companies such as Capitec, Discovery Bank and Telkom Pay, which gives us access to a large clientele. It’s hard to reproduce.
And the last is our community, which is the hardest to replicate, and that’s where the real magic happens. How do you replicate the trust and love that our investors, customers and staff have for the brand? This is the hardest part to compete with. That said, we are not sleeping 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 dynamism and the same rhythm.
PM: Purple Group has just released its half-year results, which saw the group’s revenue increase by 36% to R137 million and profits by 114% to R17.7 million. EasyEquities increased its revenue by 27.9% to R108.7 million and saw its cost per client fall. With this combination, you would expect profits to increase, but they only increased by 4.3% to R23.3 million. Why?
CS: The first element is the customer’s activity. During the Covid shutdowns, we saw much higher investing and trading activity. Customers returned their wallets twice a year. Now that everyone is back to work, trading has returned to more normal levels, which means lower returns. Our revenue per customer has therefore normalized.
A second factor is that 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 have come in the past two years is significant because the economic value of a customer is lowest in the first year. But the nature of investing means that the value of the portfolio increases each year as the investor makes new contributions and the market delivers a return.
As the economic value of a portfolio increases, so does the customer value — it’s a percentage game. This is the element we miss when we look at the income statement – this company has an annuity growth rate of 25% to 30% year over year, and that without adding a new customer.
To increase our profits significantly, we need to reduce the cost of servicing a customer from R160 per year to around R80, double our customer base and add new products and services.
PM: Sounds like a big ask. The Purple Group has an annualized profit of around R36 million and its market capitalization of R3.5 billion, which translates to a PE ratio of around 90. Obviously your customers love you, but for justify this PE, the market is expecting you to double your revenue and profits every year. Is it a business risk?
CS: Yes, 100% is a risk. But we have accumulated a delivery record over the past seven years. To continue, we must do three things: Do what we have done, while developing new distribution channels. Develop new products. We have 10 new product lines signed for the next three years. And finally, we have to do this elsewhere, so we take our SA lessons and apply them in East Africa and the Philippines.
PM: EasyEquities is not limited to stock trading. You operate EasyProperties and now own 100% of EasyCrypto. How profitable are these two companies and what does their growth trajectory look like?
CS: EasyCrypto contributed R4.5 million to after-tax profit on R9.3 million in revenue. But remember, we earned our first 51% of EasyCrypto just by hitting distribution targets and paid R60 million for the next 49%. We haven’t spent any money on development or marketing, which is a significant plus.
For EasyProperties, we hired the team, developed the legal framework and capabilities, and built the technology. So, no, it’s not profitable…it’s only been two years old. It will pay off by this time next year. And in five years it will look like EasyCrypto.
PM: 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 be launching a crypto exchange within Easy Crypto – it is live in beta as we speak. We will launch EasyLife, a life insurance specially designed for investors, and EasyCredit. It is a credit secured by your assets, but with a low loan-to-asset value. The cost of credit will be much lower than what you can get elsewhere — prime plus one or 1.5.
We also have EasyFX planned, which will be linked to our launch of European and UK equities this month. We want money to flow freely. But we need a license and hope for this year. Our latest is EasyRetire. How can I retire and what should I do?
PM: Many people compare EasyEquities to Robinhood. Iis this a fair comparison?
CS: Robinhood is a dressy shopping destination. Look at the economy and the products and services – you can’t deny that. They are closer to the GT247. EasyEquities is an investment platform specially designed to improve the investment experience.
PM: What gets you out of bed in the morning?
CS: We are deeply determined. We — or I — get out of bed to change people’s lives. Not to make profits…profits will follow. DM/BM