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EZTrader Struggles to Profit

On the 29th March EZTD, the listed owner of EZTrader, filed its Form 8-K to the US Securities and Exchange Commission (SEC) and it is doubtful that shareholders will have found it pleasant reading as EZTrader struggles to profit from increased revenues.

The release of the financial statistics from EZTD has seen the share price drift lower and is currently trading at 11¢ bid, offered at 12¢.

EZTD struggles to profit

Courtesy of ChartIQ

Revenues & Customer Base

In the Financial Highlights of the release the first four bullet points are associated with the increased revenue and the expanded customer base:

  • Net revenues for the year ended December 31, 2015 increased by 29% to $25.9 million, from $20.1 million in the year ended December 31, 2014.
  • Annual volume of transactions (US $) for the year ended December 31, 2015 increased 18% to $97 million, compared with $82.1 million in 2014.
  • The number of transactions for 2015 increased to 2,076,000, compared with 952,000 in 2014.
  • The number of new customers was 57,400 at the end of December 2015, compared with 28,900 for the year ended December 31, 2014.

which are all admirable improvements.

Marketing Costs

Sales and Marketing in year end 2014 was $17.41m against $20.94m last year.

EZTrader now boasts six partnerships with ‘major professional athletics teams across Europe’ (although one of those happens to be Tottenham Hotspur) which would no doubt demand a fair slice of the marketing budget.

Operating Revenues & Costs

In 2014 the Operating Loss was $7.5m compared with $3.4m in 2015.

 Year End December 31st
20152014
Net Revenues25,91420,114
Operating Expenses
Sales & Marketing20,94217,410
General & Administrative4,6983,073
Research & Development1,8921,366
Stock-based Compensation1,7481,644
Impairment of Bank Deposit-4,122
Total Operating Expenses29,28027,615
Operating Loss(3,366)(7,501)
Net Financial Expenses(2,788)(1,441)
Net Loss Before Taxes on Income--
Net Loss Attributable to the Company(6,154)(8,942)

In the year to end 2014 a Bulgarian ‘bank’, went bust and cost EZTD just over $4.1m. That $4.1m is likely a one-off so if that loss was overlooked then EZTD’s Total Operating Expenses for 2014 would only be $23.5m as opposed to the posted $27.6m. This in turn would create an Operating Loss of $3.38m for 2014 against an Operating Loss for 2015 of $3.37m, almost exactly the same.

If a big marketing budget which leads to a bigger client base and then turnover one would hope there would be some kind of economy of scale, that maybe the increased costs would lead to a disproportionately high revenue. It would appear not to be the case.

Segregated Client Cash Accounts

Under ‘Current Assets’ the segregated client cash accounts shows $2.34m for end-2014 but only $1.50m for end-2015. If this were to be the amount of deposits that EZTrader’s clients are holding at EZTrader then this is not good news at all. This is the snapshot number that signifies the maximum potential revenue EZTrader has at any one time. Although the absolute value ($1.50m) is not too much of an issue considering the total revenue form the previous year and a snapshot of $2.34m, the fact that it is only 64% of the preceding year could be a major issue if it is the start of a decline in revenues.

Funding

Last year EZTD sold 21.5m new shares and if the high of the year (according to the below chart of the EZTD share price) was 23¢ the price may have been somewhere around 19¢. This would have grossed just over $4m.

A further $1m was raised by a convertible bond which matures in July 2016 and has a conversion price of 19¢ (hence the assumption of a price of 19¢ for the equity). Right now that bond is unlikely to be converted with the share price at 11¢-12¢ meaning the company would have to find $1m to repay that loan.

EZTrader Struggles to profit

Courtesy of OTCMarkets

It would appear that the company will have to go to the market again for renewed funding, especially if it wishes to market in Japan as aggressively as it has in Europe. With a share price of 11.5¢ that may entail a great deal of dilution for the current shareholders.

 

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