eToro to Buy TradeZero for Up to $231 Million as Equities Lead Second-Quarter Growth

eToro said Tuesday it agreed to acquire US brokerage TradeZero for up to $231 million, adding an equities and options platform for active traders. The Nasdaq-listed trading firm will pay in cash and up to 2.5 million newly issued Class A shares, subject to purchase price adjustments. TradeZero generated about $80 million of revenue in the 12 months to June 30 at an 81% gross margin, putting the price at roughly 2.9 times revenue.

The deal was announced alongside eToro's second-quarter results. Net contribution rose 9% year over year to $229 million, while GAAP net income was $53.5 million. On an adjusted basis, net income increased 16% to $62.8 million, and adjusted EBITDA came in at $78.1 million, up 9%. Funded accounts reached 4.28 million, up 18%, and assets under administration rose 10% to $19.2 billion.

Equities led the growth. Net trading income from equities, commodities and currencies climbed $27.6 million year over year to $141.6 million, outpacing the $19.8 million total increase in net contribution. Still, the second quarter trailed the first, when a commodities boom pushed net contribution to $258 million and net income to $82 million. The equities, commodities and currencies line fell 15% from the first quarter's $165.6 million, while net contribution was down 11% and GAAP net income fell 35%. July data was softer too: assets under administration stood at $18.5 billion, down 5% year over year, after reaching $20.1 billion in May.

TradeZero was founded in 2015 and serves active US traders in the United States, Canada and international markets. In February 2022, TradeZero Securities Canada was accepted as a dealer member of the country's investment industry regulator, allowing Canadian retail clients to trade US-listed stocks and options. TradeZero also carries a regulatory history from the meme-stock episode: the SEC fined TradeZero America $100,000 and co-founder Daniel Pipitone $25,000 in May 2022 over public statements about trading restrictions on January 28, 2021. Neither admitted nor denied the findings.

Crypto and M&A

eToro's cryptoasset revenue, which it books gross, fell 30% year over year to $1.35 billion, while the cost of that revenue was about $7 million more than the revenue itself. Adding $19.7 million from crypto derivatives leaves an estimated $12.5 million from crypto in the quarter, versus roughly $29.3 million a year earlier, putting crypto at about 5.5% of net contribution, down from 14%. The company does not break out net contribution by product.

TradeZero is eToro's third signed acquisition this year and the first that is not a crypto business. In the second quarter, eToro completed purchases of wallet maker Zengo and crypto exchange Bit2C. CFO Meron Shani said more than 60% of clients who traded commodities in the two quarters to March went on to trade equities in the second, showing "how users move between asset classes as market opportunities evolve." CEO Yoni Assia said the TradeZero combination "gives us a faster path to launching new products for US customers." eToro held $1.2 billion in cash and short-term investments at June 30 and bought back $189.1 million of its stock in the first half. The TradeZero deal needs regulatory clearance and is expected to close in the first half of 2027. TradeZero previously agreed to merge with Dune Acquisition Corp in 2021 to list on the NYSE under the ticker TRAD, but the listing never happened.