While group revenue for the year ended August surged 33.8% to R274m, Purple Group’s costs have shot up too — and the 250,000 new investors it added to its wildly successful trading platform EasyEquities will take some time to deliver a profit. The FM spoke to CEO Charles Savage.
Has the acquisition of clients lost its punch, given the horrible time we’ve had on the markets?
The tide has definitely gone out on trading opportunities. On the other side, I think retail investors have shown incredible resilience and persistence, despite market conditions. We’ve added the same number of active customers in the past 12 months as we did in the previous 12 months. The only difference is that their capacity to invest is lower. They’ve got less capital and that’s a function of the return to work — that’s costing people more money — and then there’s inflationary and recessionary pressures. But clients haven’t abandoned their desire to invest.
But what is more important for you: client acquisition, or the amount of activity that takes place in a customer’s account?
The primary objective is acquisition because the trading activity, historically, does tend to a norm. We can’t predict volatility or control it, so the only thing we can focus on is that which we can control: acquisition.
On that note, do you have a sense of where market saturation in South Africa is — where clients may top out?
For now, the primary target audience is the taxpaying base of the country — about 5.2-million South Africans. When you think about the runway for EasyEquities, it’s not dissimilar to banking. If you look at Capitec, which has about 16-million customers, those are obviously economically active South Africans. That’s the secondary base, which gets you to about 25-million individual accounts.
You tweeted that the 500,000 customers “onboarded” in 2021 and 2022 will, when they turn profitable, add a “minimum” of R100m to profits within two years. What gives you such confidence?
If you look at the customer cohort presented in the annual report, you’ll see that all of them from 2014-2019 have displayed a minimum profit of R200 per customer per year. Some have taken two years, some have taken three years to get there and some have gone way beyond — to R800 per customer. So when we look at the 500,000 customers that have arrived, how similar do they look to the customer cohorts that arrived in 2014-2019? They’re identical. These are (on average) 31-year-old black South Africans, 52% male, 48% female. If they behave in the same way, they will at a minimum produce R200 of profit per customer per year in the next two years.
But your shares have sold off quite dramatically the past six months, which suggests the market is not buying that vision.
We spent an extraordinary amount of time in this year’s financial statements to try to give better insights into the economics that drive the customer cohorts. The key number is the 500,000 unprofitable customers that we’re paying for. Also, growth stocks are off, and we’re a growth stock in a value market. Many people have called us the Robinhood [Markets] of Africa but I dislike the label, because Robinhood is a trading destination and if you look at its results in its first quarter, it lost 9-million customers. If you look at us, we’re still growing. All metrics are up including costs — but there is a bit of front-loading in the costs. You’ve got to serve these customers before they’re profitable, and you’ve got to create capacity for next year’s customers.
What’s your vision for the Philippines venture?
First, if you look at the time zone, we want to operate 24 hours a day and the Philippines fits the time gap between what we want to do in South Africa and what we want to do around the world. The second reason is that the competence of the staff is extraordinarily high, and similarly priced to South Africa. And then if you look at Southeast Asia, within a four-hour flight of the Philippines you’ve got 60% of the world’s population, and they’re all emerging markets and though they’re not identical to South Africa, they display similar attributes. That is, the financial services we offer haven’t been available to them. We think our product appeal is going to be very high.
Is it going to cost a lot?
A lot of the money we’ve spent over the past 12 months was in setting it up, so for the large part it’s in the income statement now. There’s obviously marketing money as we go into those regions that we’ll spend to acquire customers, but we don’t think it’s going to be more expensive to acquire customers there than in South Africa.
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