Revenues fell by 45% and profits fell by 79% in the fourth quarter of 2022, according to XTB

Online broker XTB SA (WSE:XTB), based in Poland, has released its financial results for the fourth quarter and the entire year 2022, showing a dramatic downturn in business.

However, generally, 2022 was the most prosperous and successful year ever for XTB.

When it comes to Q4, XTB is forecasting top-line Revenues (or what it refers to as Total Operating Income) of PLN 216.7 million (USD $49 million) in Q4-2022, down by 45% from Q3’s PLN 391.3 million and making Q4 XTB’s slowest quarter of the year. From PLN 236.2 million in the third quarter to PLN 50.0 million ($11 million), net profit decreased.

The company reported yearly Revenue of PLN 1,444 million ($328 million) and Net Profit of PLN 765 million ($174 million), making 2022 its greatest year overall, as previously mentioned.

In Q4 2022 and for the entire year 2022, XTB’s monthly client CFD trading volume averaged $183 billion and $188 billion, respectively.

The management of XTB stated that 2022 would be another period of dynamic commercial growth and client base development for XTB. Trading in financial instruments has become particularly alluring for many investors because to the high volatility of the financial and commodity markets as well as the presence of negative real interest rates. As a result, the Group added a record 196.9 thousand new customers, and the number of customers who were actively using its services rose by 35.9% year over year, from 190.5 thousand to 258.8 thousand. This resulted in a considerable rise in the number of lots that clients traded on CFD instruments, up from 4.1 million to 6.4 million lots, or by 55.1% year over year.

Revenues increased by 18.1% y/y, or PLN 33.2 million, from PLN 183.6 million to PLN 216.7 million, in the fourth quarter of 2022, which was distinguished by noticeably lower volatility in the financial and commodity markets compared to the preceding quarters, particularly in terms of the occurrence of long and clear trends. Lower per-lot profitability, which fell by PLN 45 (from PLN 171 to PLN 126), and increased customer turnover in financial instruments, as measured by the number of transactions completed in lots, which rose by 646.8 thousand lots, both had an impact on this change (from 1 073.5 thousand to 1 720.4 thousand lots).

According to the business, the Management Board’s top aim is to grow the clientele base, which will improve XTB’s position in the global market by appealing to a broad customer base with its product offering. Numerous initiatives, such as the launch of new goods or marketing campaigns, are supporting these operations and will continue to do so. The Management Board’s goal for 2023 is to add at least 40–60 thousand new customers per quarter on average. The Group added a total of 42.3000 new clients in January 2023. For instance, on January 9, 2023, XTB introduced a new campaign called “Free share for a good start” in which participants who opened an account with XTB and made a deposit of any amount were eligible to get a free share worth up to USD 30.

Cash Flows by Asset Class

When comparing the kinds of instruments that contributed to the formation of XTB’s revenues, it is clear that CFDs based on index were in the lead in 2022. Their portion of the revenue structure for financial instruments increased from 32.8% to 46.4% from the previous year. This is a result of the CFD instruments with high profitability, which are based on the US 100 index, German DAX index (DE30), or US 500 index. The CFD-based asset class was the second-most profitable. In 2022, they made up 33.8% of the revenue structure (compared to 49.3% in 2021). This is a result of the great profitability of CFD instruments based on quotes for the prices of oil, gold, and natural gas. Currency-based CFD revenues made up 17.0% of total revenues, up from 12.5% a year earlier. The most lucrative financial instruments in this class were CFDs based on the EURUSD and GBPUSD currency pairings.

The XTB business model, in which the Company is a party to transactions concluded and initiated by clients, combines elements of the agency model and the market maker model. In the literal sense, XTB does not engage in proprietary trading—transactions made for one’s own account in anticipation of changes in the prices or values of underlying instruments.

The agency model is another component of XTB’s hybrid business strategy. For instance, on the majority of CFD instruments based on cryptocurrencies, XTB secures these transactions with outside partners, thereby removing itself from the transaction as the other party (of course, from a legal point of view, it is still XTB). The Company’s completely automated risk management procedure reduces the Group’s exposure to market fluctuations and compels it to hedge its positions in order to maintain the required levels of capital. Additionally, all transactions on shares, ETFs, and CFD instruments based on these assets are realised directly by XTB on regulated markets or in alternative trading platforms. For this class of instruments, XTB does not act as a market maker.

The following sources contribute to the Group’s operating income: (i) spreads (differences between “offer” and “bid” prices); (ii) fees and commissions collected from clients; (iii) swap points charged (amounts resulting from the difference between a financial instrument’s notional forward rate and spot rate); and (iv) net results (gains less losses) from the Group’s market-making activities.

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