Freetrade Valuation Model

I agree. Given the speculative nature of this forum, This GenAI take is interesting and perhaps prompts further analysis, but do take it with a bucket of salt.
That is not to say, it wont get better - we’re merely working with a lot of unknowns and biases at this time.

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why dont we just ask the model to do just that.

PS if you see anything factually wrong or wild assumptions, we can tell the model to adjust accordingly so we get a more sensible data in, for a sensible estimate out @CashCow @Cameron

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I asked

there’s 82.8 million outstanding now, expect it’ll be perhaps 100 million by time of any ipo, so adjust that price per share projection down accordingly

Evaluate the assumptions and look up the industry metrics/economic stats and macro outlook to ensure we’re as close grounded to reality as possible

Google Gemini Advanced Says

Based on the provided documents and considering the factors mentioned, the estimated IPO share price target range for Freetrade at the end of 2026, with 100 million shares outstanding, is revised as follows:

Optimistic Scenario:

  • Revenue: £112.4 million (45% annual growth from 2023)
  • User Base: 4 million
  • AUM: £5 billion
  • Valuation Multiple: 15x
  • Estimated IPO Valuation: £1.686 billion
  • Estimated Share Price: £16.86 (based on 100 million shares outstanding)

Conservative Scenario:

  • Revenue: £56.2 million (30% annual growth from 2023)
  • User Base: 2.5 million
  • AUM: £2.5 billion
  • Valuation Multiple: 10x
  • Estimated IPO Valuation: £562 million
  • Estimated Share Price: £5.62 (based on 100 million shares outstanding)

Therefore, the revised target share price range for Freetrade’s IPO at the end of 2026, with 100 million shares outstanding, is £5.62 to £16.86.

> I can live with that as well

OpenAI GPT4 Premium Says

To estimate the target IPO price range for Freetrade by the end of 2026 under both optimistic and conservative scenarios, we need to consider the projected revenue, user base, assets under management (AUM), and other market factors. Here are the detailed calculations and assumptions:

Optimistic Scenario

  • Revenue: £112.4 million
  • User Base: 4 million
  • AUM: £5 billion
  • Annual Growth Rate: 45%

Conservative Scenario

  • Revenue: £56.2 million
  • User Base: 2.5 million
  • AUM: £2.5 billion
  • Annual Growth Rate: 30%

Estimating Valuation Multiples

We can use the price-to-sales (P/S) ratio, a common metric for valuing fintech and high-growth companies, especially when they are not yet profitable. Let’s assume the following industry averages based on similar companies and market conditions:

  • Optimistic P/S Ratio: 12
  • Conservative P/S Ratio: 8

These multiples are consistent with valuations of high-growth fintech companies, reflecting the market’s expectations for future growth and profitability.

Calculating Valuations

Optimistic Scenario:

  • Projected Revenue: £112.4 million
  • Estimated Valuation: £112.4 million * 12 = £1.3488 billion

Conservative Scenario:

  • Projected Revenue: £56.2 million
  • Estimated Valuation: £56.2 million * 8 = £449.6 million

Calculating IPO Price per Share

Assuming the projected number of outstanding shares will be 100 million by the time of the IPO:

Optimistic Scenario:

  • Estimated Valuation: £1.3488 billion
  • Estimated IPO Price per Share: £1.3488 billion / 100 million shares = £13.49 per share

Conservative Scenario:

  • Estimated Valuation: £449.6 million
  • Estimated IPO Price per Share: £449.6 million / 100 million shares = £4.50 per share

Adjusting for Market Sentiment and Conditions

These estimates can be adjusted based on broader market conditions, investor sentiment, and the specific performance of Freetrade compared to its competitors. Given the current macroeconomic outlook:

  • Interest Rates: Expected to gradually decrease from mid-2024, improving investment conditions.
  • Inflation: Predicted to moderate, supporting economic stability.
  • VC Liquidity: Strong interest in fintech continues, though valuations may be tempered by economic uncertainties.

Conclusion

The target IPO price range for Freetrade by the end of 2026, given the two scenarios, can be summarized as follows:

  • Optimistic Scenario: £13.49 per share
  • Conservative Scenario: £4.50 per share

So we can meet in the middle.

TLDR. We want to see the USER GROWTH

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@Viktor made his name as a growth marketer for Google. If anyone can light a fire under user growth

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Thank you for all your posts,very much appreciated I would be delighted to get a return of £8 a share. I concur that it will not be any less than £8. £48,000 would certainly put a smile on my face.

I’m excited as bull on a stud farm to see what the new CEO does in the coming weeks and months.

Vikto’s unleashed, unmuzzled and re energised in a new role is certainly making me more optimistic about Freetrade than I have been for a couple of years at least.

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I think @Viktor is the right man for the job as well, in the scale era now.

To be fair about this process, i Asked GPT4o (newer model yet) to look at the Freetrade competitors to see how aforementioned numbers tally-up or not.

the response:

Evaluating Freetrade’s Competitors and Extrapolating Valuation Metrics

To determine the appropriate P/S (Price-to-Sales) and P/E (Price-to-Earnings) ratios for Freetrade’s IPO valuation by the end of 2026, let’s look at the financial metrics and growth rates of its closest competitors.

Key Competitors:

  1. Robinhood
  2. EToro
  3. WealthSimple
  4. Trade Republic
  5. Interactive Investor

Competitor Growth and Valuation Metrics:

1. Robinhood:

  • Revenue (2023): $1.34 billion
  • User Base: 23.2 million
  • Market Cap: $15.73 billion
  • P/S Ratio: 11.7
  • P/E Ratio: 148.86

2. EToro:

  • Revenue (2023): $1.234 billion
  • User Base: 31 million
  • Market Cap: $3.5 billion
  • P/S Ratio: 2.8
  • P/E Ratio: N/A (not provided)

3. WealthSimple:

  • User Base: 3 million
  • Market Cap: $4 billion
  • P/S Ratio: 12
  • P/E Ratio: N/A (not provided)

4. Trade Republic:

  • Market Cap (2021): $4.95 billion
  • User Base: 600,000
  • P/S Ratio: Not provided directly, inferred high growth

5. Interactive Investor:

  • Revenue (2021): £133 million
  • User Base: 400,000
  • Market Cap: £1.75 billion
  • P/S Ratio: 13.2
  • P/E Ratio: 41.97

Extrapolating P/S and P/E Ratios for Freetrade:

Projected P/S Ratio:

Given the P/S ratios of Freetrade’s competitors, which range from 2.8 (EToro) to 13.2 (Interactive Investor), we can infer a realistic range for Freetrade:

  • Conservative P/S Ratio: 8 (considering EToro’s broader user base and lower revenue multiple)
  • Optimistic P/S Ratio: 12 (aligning with WealthSimple’s and Robinhood’s growth prospects)

Projected P/E Ratio:

The P/E ratios for the competitors vary significantly, with Robinhood at 148.86 and Interactive Investor at 41.97. For a high-growth fintech like Freetrade, we can consider:

  • Conservative P/E Ratio: 40 (aligning with more established competitors like Interactive Investor)
  • Optimistic P/E Ratio: 80 (reflecting higher growth potential and investor optimism)

Target IPO Price Range Calculation:

Optimistic Scenario:

  • Revenue: £112.4 million
  • User Base: 4 million
  • AUM: £5 billion
  • P/S Ratio: 12
  • Valuation: £112.4 million * 12 = £1.3488 billion
  • Estimated IPO Price per Share: £1.3488 billion / 100 million shares = £13.49

Conservative Scenario:

  • Revenue: £56.2 million
  • User Base: 2.5 million
  • AUM: £2.5 billion
  • P/S Ratio: 8
  • Valuation: £56.2 million * 8 = £449.6 million
  • Estimated IPO Price per Share: £449.6 million / 100 million shares = £4.50

Conclusion:

Based on the financial metrics of Freetrade’s competitors and the current market conditions, the projected IPO price range for Freetrade by the end of 2026 is:

  • Optimistic Scenario: £13.49 per share
  • Conservative Scenario: £4.50 per share
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Again, we need to switch on the Marketing Engine to get that target USER ACQUISITION

  • European expansion is great, but want to see better growth

IMHO Opportunities

  • AI Augmented stock analytics service to boost the platform capabilities and user interest. Think P/E P/S per equity category, premiums, comparison to peers, and evaluation of latest hype like whatever the meme stock craze.
  • AI User Investment Coach (VS Trading) To offer personalise contextual stock evaluation and education service. Think of someone asking quesitons to ensure that stock investment thesis aligns with personal interest and timeframes. all those good questions (outlook for your investment horizon, etc) an all rounded investment manager to help with a degree of wealth management (SIPP/ISA/Cash etc)
  • Macro Outlook AI powered Feedback loop (This Global Macro Investor, Raoul Pal PoV) to guide User on economy, investment ideas, opportunities, along with.

These would be some incredibly helpful (even for myself) tools and capabilities to have in one app.

Im not even bothered about the hourly chart obv, - I see Freetrade as a wealth management/growth app. Unlike etorro and robinhood

These are my views folks.

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Computer says:

Enhancing Freetrade’s product offerings with advanced AI capabilities could significantly increase its value proposition, user growth, and AUM projections. Here’s a detailed evaluation of the potential impact of these enhancements:

1. AI Augmented Stock Analytics Service

Value Addition:

  • Enhanced User Experience: By providing detailed stock analytics (P/E, P/S ratios, comparisons, and trend analysis), users would have access to sophisticated tools that were previously available only to institutional investors.
  • Increased Engagement: Users are likely to spend more time on the platform, exploring various analytics and making more informed decisions.
  • Attract New Users: Advanced analytics can attract more serious investors and traders looking for a robust platform.

Industry Benchmark:

  • E*TRADE and TD Ameritrade: These platforms offer comprehensive analytics, contributing to higher user satisfaction and retention. Incorporating similar or superior features could place Freetrade in direct competition with these established players.

2. AI User Investment Coach

Value Addition:

  • Personalized Investment Advice: An AI coach that provides personalized, context-driven investment advice can cater to individual user needs, improving investment outcomes.
  • Educational Value: By guiding users through their investment journey and offering real-time feedback, the AI coach can significantly enhance user knowledge and confidence.
  • Wealth Management Integration: Integrating this feature with SIPP/ISA accounts can add substantial value for users looking for holistic financial planning tools.

Industry Benchmark:

  • Betterment and Wealthfront: These robo-advisors offer personalized financial advice and have seen substantial user growth. Implementing a similar AI coach can position Freetrade as a leading hybrid platform combining self-directed trading with advisory services.

3. Macro Outlook AI Powered Feedback Loop

Value Addition:

  • Informed Decision-Making: By providing macroeconomic insights and investment ideas based on global trends, users can make better-informed decisions.
  • Competitive Edge: Offering unique insights from reputed sources like Raoul Pal can differentiate Freetrade from competitors who do not provide such advanced economic analyses.

Industry Benchmark:

  • Goldman Sachs and JP Morgan: These firms provide high-level economic insights to their clients. Bringing similar capabilities to retail investors can significantly enhance Freetrade’s attractiveness.

There are no money for marketing investments…

The revenues growth of the last 12 months is related to the increase of interest rates… Same as AJ bell or HL

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Interesting thread!

The UK market is becoming too saturated and it will be very difficult for Freetrade to attain the users needed to support these valuations. New users has slowed down to a snail’s pace and there’s even more competition coming. Hard to see this trend reversing anytime soon.

It’s worth noting though, with approx 700K funded accounts (assuming existing ratio has held), all Freetrade has to do is retain those users in the years to come as their wealth grows. AUM should grow significantly after 5/10/20 years!

If Freetrade wants to grow their users in the short term, they need to expand into new markets and that will take significant investment (fundraising).

The other route is to add things like JISA and SIPP employer contributions, launch share lending and find other revenue streams…this requires lots of dev work, which has always been the bottleneck at Freetrade.

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this was the point of the European expansion strategy. The userbase is x10 the UK market.

However many countries Freetrade can register in, and onboarding users, is a way to go.

IMHO need to tap into advance feature offering with genAI. IMHO it doesnt need to go wild - and google cloud offers a decent and mature platform for this capability to be enabled.

My 2 cents aka ‘Jaroslav’s 3 Step Strategy’ @Viktor is

  1. Make Freetrade Product/Services more Interesting
    While recent updates like Settlement speed T+1 is great but It’s harder and too nuanced to market and use for user acquisition.
    Focus on Value-Add and Value-Acceleration with Aforementioned 3 pronged product enhancement with GenerativeAI. If Freetrade won’t - others will. Its not a hype, its a game changer. (As you see from these analytics here in this thread!)

  2. Connect new Valuable Freetrade proposition with existing and New users
    Go Creative Marketing, Social Marketing, Influencer marketing once again. There will be a LOT to talk about.

  3. Focus on Existing User Base Conversion New Country Expansions are great and need to be wrapped up. If Freetrade already has access to 100mil/175 million users (I asked AI to work it out) then focus Time & $$$$ on Marketing to existing potential users.

How do i know there are 175 million users? I asked AI
Let me know if im wrong, but i think its in the ball park

AI Says

Freetrade App Launch and Population Exposure

Current Launch Status:

Freetrade is primarily available in the UK, with plans to expand to several European countries. As of now, it has a significant user base in the UK and is targeting other countries like the Netherlands, France, Germany, Australia, and Canada for future expansion​ (Trading Apps)​​ (BrokerChooser)​​ (DayTrading)​​ (Investing in the Web)​.

Population Exposure:

To estimate the potential user base aged 18-60, we consider the current and potential markets:

  1. United Kingdom:
  • Population (18-60): Approximately 38 million.
  1. European Union (expansion countries):
  • Netherlands: Population (18-60): Approximately 11 million.
  • France: Population (18-60): Approximately 40 million.
  • Germany: Population (18-60): Approximately 50 million.
  1. Australia:
  • Population (18-60): Approximately 15 million.
  1. Canada:
  • Population (18-60): Approximately 20 million.

Total Potential Market:

Summing up these figures gives a rough estimate of the potential user base:

  • UK: 38 million
  • EU (Netherlands, France, Germany): 101 million
  • Australia: 15 million
  • Canada: 20 million

Total Potential User Base (18-60): Approximately 174 million.

Yes. Some people are forgetting that it will take a lot of cash to grow. That level of cash will not come from the present customers. This is the point of looking for investment. The cash will need to be raised. Cash raising is not a doddle … market sentiment needs to be right.

It is almost as though people don’t seem to have realised why Freetrade has almost died several times in the past few years.

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Spot on.

Not so sure. These may be desired by some (present) customers but it is wholly unclear how much profit this adds. I suspect that if the £ was high it would have already happened.

As @Davide76 says

This is a tricky business.

I don’t think that companies like Hargreaves and Lansdown will roll over and die. They absolutely will have appropriate competitive responses for the client base they seek.

Haven’t we crossed that predicament now, given FT just about became profitable?

Absolutely not. We have one Q of a tiny profit. Freetrade is nowhere near being a self sustaining profit engine that can drive growth of the type that you have asked for above.

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For Sure. Incumbents will be keen to be seen as a viable competitor, but the plumbing takes time. If HL wanted to compete on Cost, they would have done so by now.

That’s not it - in my view.

Competition - I think it is more to watch out for the other fintech peers in the arena - especially those well-funded. Then again, FT can watch competitors all they like, - it’s about being able to do something about it.
New features and enhanced user experience with AI service bolt-on do not need to cost the world. (I work in consulting and dabble with such rapid experimentation - as this thread may have given away)

Rather - It’s about execution. FT is in the right place and at the right time. WIP/TBC
Also, Incumbents like HL may have internal org ops inertia to deal with.

The rates & Maco outlook is that it is more likely to be going lower than higher so the macro is looking favourable in terms of liquidity considerations for any potential raise. (Rather not)

Otherwise, my proposed 3-point plan above is not to start inventing wheels and enter new markets (way more costly) but rather focus on conversion and User Base growth in EXISTING market(s)

but the tiny amount is still there, in the black though, right. (for 2023 report) that’s 6 months back

I am not complaining that the small Q1 profit exists. The point is that we have no idea whether there will be 4Q’s of profit. And moreover, and more importantly, the level that we see is not enough to grow the company to the lofty heights of the even the base scenarios that have been published above.

The predicament that Freetrade is not unusual - does it have the time to grow*? I am pretty sure the major investors on the board are asking this and the usual questions … they are not looking at their investment in isolation … they will take a holistic view in line with their whole portfolio.

(* I mean as an independent company. Or is it better for it to be acquired by someone with bigger pockets)

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Fair.

Tbh even acquisitions have their forward looking multipliers. Particularly in overall improving (yarp, things are indeed improving in the longer term) macro conditions.

Watch this space.
It was an interesting GenAI analysis and unpacking exercise. Thanks to all participating and your feedback!

J

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