The share price of Plus500 collapsed in early trading despite nearly doubling its profits last year. The news come as it issued a major profit warning for the current year.
The stock of the online broker dropped by as much as 36 percent in early trading, from 1,635p at yesterday’s close to 1,053p this morning. It comes as it warned that stricter regulations will hit the company’s 2019 revenue, which is now expected to come in below the current market expectations.
This morning, the company admitted that the crackdown of the European Securities and Markets Authority on the amount of money that amateur traders can borrow from brokers as they bet on market movements will have an effect on the high-risk contract-for-difference (CFD) financial products of Plus500.
The online trader warned that stricter regulations, as well as the decision of Plus500 to maintain its marketing budget, is likely to result in lower profits for this year as an outcome of these factors.
The net profit of the company improved by 90 percent year on year to $379 million (£294.5 million) for the latest full-year of the betting company.
Its revenue also ballooned, reporting an increase of 65 percent to $720.4 million.
Accordingly, the earnings per share of the company increased. It is up by 90 percent from 2017 at $3.33, while Plus500 also increased its dividend by 18 percent to $1.99.
The cashflow improved by 30 percent to $315.3 million while the company boasted a debt-free balance sheet.
Asaf Elimelech, the chief executive of the firm, hailed a “momentous year” for the company, in which it rose into the FTSE 250 five years after its Aim listing.
He attributed a successful first quarter to a spike in cryptocurrency trading after bitcoin entered the mainstream when it came close to a valuation of $20,000 in December 2017, resulting in record customer recruitment.
However, traders looked to troubles brewing ahead as its shares plunged on the back of the profit warning of the company.
Russ Mould, the investment director of AJ Bell, warned that the hit has been coming for Plus500, whose competitors have downgraded their earnings due to tighter CFD rules.
He stated: “Plus500 has looked like an anomaly for some time.”
He added: “Its run of good luck has come to an abrupt halt.
He continued: “The new rules have put limits on how much money retail investors can borrow from their trading providers and there are tougher marketing rules around these products. As such, it seemed inevitable that Plus500 and the rest of its industry would find life a lot tougher.”
Elimelech stated: “We are pleased to report a year of record numbers and performance, well ahead of our original expectations.”
He noted: “Our highly flexible business model, industry-leading scale and market share, technology edge, lean cost structure and robust financial position will help mitigate the impact of regulatory measures and ensure the delivery of sustained market leading financial performance. We are therefore confident that we can continue to successfully develop our business and expand into new markets, enabling us to continue providing strong shareholder returns.”