XTB reports weak results for Q2 2021 as crypto markets bite

Compared to a solid performance during the first quarter, where the industry players broadly saw another boom in retail trading due to coronavirus, XTB revealed a drop in trading activity on the back of less volatile financial markets.

During Q2 of 2021, XTB disclosed a total operating revenue of PLN 55.1 million ($14.3 million), which dropped against the PLN 188 million it reported in the first quarter. Taking a half-year perspective, XTB revenue nearly halved in the six month through June 2021, coming in at PLN 241 million relative to PLN 518 million in the same period a year earlier.

Also, XTB saw its operating expenses rise in the first half of 2021 after seeing a figure of PLN 164 million – this was up 18 percent year-over-year from PLN 138 million in the H1 2020.

The most significant change across XTB’s financial results came regarding its bottom line metrics, which saw a net loss of PLN 23.9 million, compared to an 89 million net profit in the first three months of the year.

Finally, XTB also registered a decreasing number of new accounts with 40,623 as of Q2 2021, well below the 67,231 clients it onboarded in the previous quarter, or 40 percent QoQ. However, this metric has more than doubled in the H1 2021, apparently helped by a strong Q1 performance, as the company signed 107,000 clients compared to only 52,000 in the H1 2020.

XTB changes business model for crypto instruments

XTB said its operating revenues were primarily influenced by the lower profitability per lot, which amounted to PLN 122 from PLN 321 in H1 2020. This decrease occurred mainly due to low volatility in the financial and commodity markets, as well as the high base effect from 2020, when the markets experienced above-average volatility caused by the pandemic.

“Along with lower volatility, the transaction activity of clients also decreased. There was a more predictable trend with the market moving within a limited price range. This led to market trends that were more likely to be predicted than in the case of greater market volatility, which created favorable conditions for range trading,” the company further explains.

In this case, XTB recorded a greater number of transactions at a loss, which led to a decrease in its market making result. As a consequence, the listed-broker’s profitability per lot amounted to PLN 63, its lowest level in 5 years.

A notable excerpt in XTB’s statement was about its clients’ trading behavior on crypto CFDs instruments, which resulted in a PLN 46.6 million loss in the first half of 2021.

The company further explains:

“From the point of view of the conditions in the financial markets in the first half of this year it is worth noting that this was the period in which the upward trend in the cryptocurrency market continued until mid-May. This market is characterized by the fact that clients investing in CFDs on cryptocurrencies are willing to hold their open positions much longer and not close profits in a short time, as in the case with other instruments. Such market characteristics had a negative impact on the Group’s revenues (PLN 46,6 million loss on CFDs on cryptocurrencies in the first half of 2021).”

Although XTB has been particularly vulnerable to this shake-up, the company sees a unique opportunity to gain market share through shifting to another business model. The company has decided to hedge its crypto transactions with liquidity providers to fully secure its market position on cryptocurrencies.

“The negative result from CFDs on cryptocurrencies can be attributed to the period when the market making model was still used, and the cryptocurrency markets continued to grow dynamically. When there is a correction in these markets in the second half of May, the market position of XTB was almost completely reduced,” XTB concluded.