Gain Capital, a US-based provider of retail forex trading services, announced its second-quarter earnings for 2018 on Thursday. While the firm reported a drop in earnings year-on-year, net income saw a significant increase.
The results follow the recently completed sale of its institutional business GTX to Deutsche Börse Group for $100 million. This will allow the company to invest in its organic growth, return capital to its shareholders and invest in marketing.
For the second quarter, GAAP Net income came in at $67.1 million or $1.47 per share. This was a significant increase of 79 percent. GAAP Net revenue, on the other hand, was $84.2 million, a decline of seven percent year-over-year.
Looking at its operations, the retail average daily volume was $10.6 billion, up seven percent from the second quarter of 2017. The direct volume per active account was also up 11 percent from the same period last year. Following this trend, new direct accounts jumped by eight percent year-over-year.
H1 earnings increase YoY
Simultaneously, the company also announced its first-half earnings for 2018. These results actually showed an increase in revenue from the first half of 2017. In addition, the company announced its priorities for the second half of 2018. These are driving organic growth, increasing operating excellence and reducing revenue volatility. The main way the firm plans to achieve organic growth is through increasing its marketing spending to reach new clients.
Bloomberg, Glenn Stevens, CEO of GAIN Capital
Commenting on the results, Glenn Stevens, CEO of GAIN said: "Despite the lower volatility environment during the second quarter, our results for the first half of 2018 remained strong with net revenue from continued operations increasing 29% year-over-year, demonstrating our early success in executing on our strategic priorities to deliver more sustainable returns and drive growth.”
When asked about the volatility in the Forex markets and whether he believes the market will flatline in a conference call following the release of the results, Stevens replied: "it’s been a mixed market, it certainly is clear that it isn’t a super robust high, GVIX environment but that doesn’t mean that it’s flatlined either.”
Gain Capital expects to lose revenue due to EU regulations
With the deadline for regulations that impose restrictions on CFDs fast approaching, the broker warned that it expects to lose three percent of its revenue due to compliance costs. These regulations put a significant cap on leverage limits, require Negative Balance protection for retail traders and apply strict marketing standards.
In the conference call following the release of the results, Stevens said the firm believes it will benefit from the regulations: “In addition, the new ESMA regulations are expected to decrease the number of providers operating in the UK and EU. And given our strong brands, we’re confident we’re well positioned to increase our market share."
Furthermore, Stevens added that he expects they can make up some of the loss by acquiring new customers: "there are a fair amount of providers in the UK and on EU that are going to find the burden of compliance here too much bear to make sense financially and ultimately will leave us in an environment where we’re competing with fewer participants and so that’s got some positive impact for us…"
"Now that won’t happen overnight, but I think that will happen sooner than later and we haven’t factored in all, but it’s generally positive driver… that will offset some of the reduction that we’ve guided to.”
In addition, the broker will also temporarily withdraw GetGo, an AI-enhanced trading app, from the UK-EU market. This is because it wants to reposition the app and its offering, so it is compliant with the upcoming regulation. However, the firm did say it is planning to launch the app in other geographies, such as Australia.
