- Freetrade is a company that's on a mission to get everyone investing.
- It's main offering is an app that enables people in the UK and Sweden to buy and sell around 6,000 investments without paying any trading commissions.
- Assuming that Freetrade increases its share of the global brokerage market to 10% (from ccc%) and other assumptions, the expected return of an investment in the company over the next five years is ccc%, which equates to an annual return of ccc%. In other words, an £100,000 investment in the company is expected to return £ccc in five years time.
- The degree of risk associated with an investment in Freetrade is 'high'.
Operations
How did the idea of the company come about?
The idea for Freetrade Limited came about when the company's founder and CEO, Adam Dodds, relocated from Canada to the UK. He had been an investor since his teenage years and was working as a Manager at KPMG. Upon arriving in the UK, Dodds was surprised by the quality of investment platforms available, particularly in terms of their cost and usability. This experience appears to have been instrumental in his decision to create Freetrade, which aimed to offer a superior investment platform in these respects. [1]
What's the mission of the company?
The mission is to get everyone investing.
What are the main offerings of the company?
The main offering is an app that enables users to buy and sell investments without paying any trading commissions.
From which place(s) are the offerings able to be purchased?
The main places that the offerings are able to be purchased is in the United Kingdom and Sweden through the company's app, which can be downloaded from the Apple App Store and Google Play Store.
From which place(s) are the offerings promoted?
The main way that Freetrade promotes the offerings is through word of mouth, via its referral scheme.
What's the current strategy of the company?
ccc
Market
Total Addressable Market
Here, the total addressable market (TAM) is defined as the global brokerage market, and based on a number of assumptions, it is estimated that the size of the market as of today (6th May 2023), in terms of revenue, is $1.3 trillion.[2]
Serviceable Available Market
Here, the serviceable available market (SAM) is defined as the global equity brokerage market, and based on a number of assumptions, it is estimated that the size of the market as of today (6th May 2023), in terms of revenue, is $334 billion.
Serviceable Obtainable Market
Here, the serviceable obtainable market (SOM) is defined as the UK equity brokerage market, and based on a number of assumptions, it is estimated that the size of the market as of today (6th May 2023), in terms of revenue, is $33 billion.
Competition
Basic | Standard | Plus | |
---|---|---|---|
Pricing | £0.00/month | £5.99/month | £11.99/month |
Accounts | |||
General investment account (GIA) | Yes | Yes | Yes |
Stocks and shares ISA | No | Yes | Yes |
Self-invested personal pension (SIPP) | Yes | Yes | Yes |
Benefits | |||
Commission-free trades | Yes | Yes | Yes |
US fractional shares | Yes | Yes | Yes |
Range of stocks | 1,500 | 6,000 | 6,000 |
Automated order types | No | Yes | Yes |
1% interest on a maximum £2k uninvested cash | No | Yes | No |
3% interest on a maximum £4k uninvested cash | No | No | Yes |
Customer service | Basic | Basic | Priority |
Advanced stock fundamentals | No | Yes | Yes |
Freetrade Web beta | No | No | Yes |
FX fee | 0.99% | 0.59% | 0.39% |
Freetrade Plus | Robinhood | Trading 212 | Hargreaves Lansdown | |
---|---|---|---|---|
Commission free trades | Yes | Yes | Yes | No |
Number of investments offered | 6,000[3] | 12,000[4][5] | ||
FX fees | 0.39% | 0.15% | ||
Team
The company's founder-led, multi-disciplinary management team brings together all-star talent from tech titans, financial service giants, and top-tier consulting firms.
Adam Dodds, Founder & CEO
The instigator of this whole Freetrade thing. ACA and CFA qualified. Ex-KPMG, experience auditing global banks and brokerages; advising on financial services, fintech M&A.
Viktor Nebehaj, CMO & Co-founder
Drives the company's customer growth across the whole marketing stack. Used to scale Google's core search business in Europe. Successfully grew startups across EU & Asia.
Paul Brooking, CFO
Previously Deputy CFO at Revolut, ex Paysafe, almost 20 years at IG and PwC.
Dan Tedman, VP Risk & Compliance
Joined the regulator in 2010. 5+ years working at the FSA and Bank of England then moved to Alvarez and Marsal as a regulatory consultant.
Duncan Leslie, VP Product
A brokerage industry veteran, Duncan spent 15 years at Hargreaves Lansdown prior to Monzo as Product Director.
Amy Gilman, Associate Director of People
Previous award-winning Director of L&D at La Fosse Associates. Amy is in charge of all things people & culture.
Alan Wright, Director of Engineering, UK
A hugely experienced engineering leader, Alan joined Freetrade this year, bringing experience from Spotify and Monzo.
Timothy Drew, Director of Engineering, Australia
Tim is the original architect of Freetrade's FCP. Now in Aus at our Brisbane engineering office.
Financials
One key thing to note is that Freetrade has been given a way free shares. Essentially, Freetrade paid people to use its offering, with the aim of using the offering regularly.
The company was incorporated on 28th September 2015. [6]
Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 9 | 10 | 11 | 12 | 13 | 14 | 15 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year end date | 30/09/2016 | 30/09/2017 | 30/09/2018 | 30/09/2019 | 30/09/2020 | 30/09/2021 | 30/09/2022 | 30/09/2023 | 30/09/2024 | 30/09/2025 | 30/09/2026 | 30/09/2027 | 30/09/2028 | 30/09/2029 |
Historic | Historic | Historic | Historic | Historic | Historic | Forecast | Forecast | Forecast | Forecast | Forecast | Forecast | Forecast | Forecast | |
Profit and loss | ||||||||||||||
Revenue (£'000) | 0 | 0 | 0 | 86 | 1,660 | 12,682 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
Cost of sales | 0 | 0 | 0 | N/A | (440) | (1,639) | ||||||||
Gross profit | 0 | 0 | 0 | N/A | 1,220 | 11,043 | ||||||||
Other operating expenses | N/A | (525) | (1,301) | (3,970) | (10,737) | (29,274) | ||||||||
Operating loss | N/A | (525) | (1,301) | (3,884) | (9,517) | (18,231) | ||||||||
Finance costs | 0 | (16) | ||||||||||||
Loss before tax (£'000) | N/A | (525) | (1,165) | (3,470) | (9,517) | (18,247) | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
Tax on loss on ordinary activities | N/A | 21 | 164 | 414 | 557 | 1,136 | ||||||||
Loss for the year | N/A | (504) | (1,165) | (3,470) | (8,960) | (17,111) | ||||||||
Other comprehensive income | N/A | 0 | 0 | 0 | 0 | 0 | ||||||||
Total comprehensive expense for the year | N/A | (504) | (1,165) | (3,470) | (8,960) | (17,111) | ||||||||
Balance sheet | ||||||||||||||
Assets | ||||||||||||||
Non-current assets | ||||||||||||||
Property, plant and equipment | 3 | 9 | 39 | 76 | 94 | 5,588 | ||||||||
Intangible assets | 0 | 3 | 93 | 828 | 1,905 | 2,354 | ||||||||
Trade and other receievables | 0 | 13 | 0 | 0 | 0 | 731 | ||||||||
3 | 25 | 132 | 904 | 1,999 | 8,673 | |||||||||
Current assets | ||||||||||||||
Trade and other receiveables | 4 | 2 | 186 | 847 | 2,761 | 7,859 | ||||||||
Corporation tax receivables | 0 | 0 | 0 | 0 | 557 | 1,021 | ||||||||
Cash and cash equivalents | 112 | 727 | 2,684 | 3,355 | 6,730 | 22,672 | ||||||||
116 | 729 | 2,870 | 4,202 | 10,048 | 31,552 | |||||||||
Liabilitites | ||||||||||||||
Current liabilities | ||||||||||||||
Trade and other payables | 18 | 84 | 208 | 297 | 1,461 | 5,381 | ||||||||
Lease liabilities | 0 | 0 | 0 | 0 | 0 | 2,127 | ||||||||
18 | 84 | 208 | 297 | 1,461 | 7,508 | |||||||||
Net current assets | 98 | 645 | 2,662 | 3,905 | 8,587 | 24,044 | ||||||||
Non-current liabilities | ||||||||||||||
Lease liabilities | 0 | 0 | 0 | 0 | 0 | 3,388 | ||||||||
0 | 0 | 0 | 0 | 0 | 3,388 | |||||||||
Net assets | 101 | 670 | 2,794 | 4,809 | 10,586 | 29,329 | ||||||||
Equity | ||||||||||||||
Share capital | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||
Share premium | 252 | 1,324 | 4,610 | 10,086 | 22,801 | 57,837 | ||||||||
Other reserves | 0 | 0 | 3 | 12 | 2,034 | 2,852 | ||||||||
Retained earnings | (151) | (654) | (1,819) | (5,289) | (14,249) | (31,360) | ||||||||
Total equity | 101 | 670 | 2,794 | 4,809 | 10,586 | 29,329 | ||||||||
Cash flow statement | ||||||||||||||
Operating activities | ||||||||||||||
Loss before tax | N/A | N/A | N/A | N/A | (9,517) | (18,247) | ||||||||
Adjustments for: | N/A | N/A | N/A | N/A | 84 | 331 | ||||||||
Depreciation of property, plant and equipment | N/A | N/A | N/A | N/A | 592 | 1,143 | ||||||||
Amortisation of intangible assets | N/A | N/A | N/A | N/A | 2,022 | 818 | ||||||||
Share-based payment expenses | N/A | N/A | N/A | N/A | 0 | 16 | ||||||||
Finance costs | N/A | N/A | N/A | N/A | (6,819) | (15,939) | ||||||||
Operating cash flows before movements in working capital | N/A | N/A | N/A | N/A | (2,325) | (5,829) | ||||||||
Increase in trade and other receivables | N/A | N/A | N/A | N/A | 1,164 | 3,920 | ||||||||
Cash used in operations | N/A | (455) | (1,257) | (3,909) | (7,980) | (17,848) | ||||||||
Income taxes received | N/A | 21 | 72 | 95 | 411 | 672 | ||||||||
Net cash flows from operating activities | N/A | (434) | (1,185) | (3,814) | (7,569) | (17,176) | ||||||||
Investing activities | ||||||||||||||
Purchase of property, plant and equipment | N/A | (8) | (43) | (93) | (102) | (326) | ||||||||
Purchase and development of intangible assets | N/A | (3) | (90) | (898) | (1,669) | (1,592) | ||||||||
Net cash flows from investing activities | N/A | (11) | (133) | (991) | (1,771) | (1,918) | ||||||||
Financing activities | ||||||||||||||
Proceeds on issues of shares | N/A | 1,072 | 3,286 | 5,476 | 12,715 | 35,036 | ||||||||
Investment in subsidiary | N/A | (12) | (11) | 0 | 0 | 0 | ||||||||
Net cash flows from financing activities | N/A | 1,060 | 3,275 | 5,476 | 12,715 | 35,036 | ||||||||
Net increase in cash and cash equivalents | N/A | 615 | 1,957 | 671 | 3,375 | 15,942 | ||||||||
Cash and cash equivalents at beginning of the year | N/A | 112 | 727 | 2,684 | 3,355 | 6,730 | ||||||||
Cash and cash equivalents at end of year | N/A | 727 | 2,684 | 3,355 | 6,730 | 22,672 | ||||||||
Other | ||||||||||||||
Number of registered users | 248,848 | 886,743 | ||||||||||||
Assets under management[7] (£'million) | 249.1 | 897.5 | ||||||||||||
Trading volumes[8] (£'billion) | 0.8 | 3.3 |
According to Crunchbase, Freetrade has raised a total of $135.5 million since the company's inception across 13 funding rounds.[9]
What are the assumptions used to estimate the financial forecasts?
Description | Value | Commentary |
---|---|---|
Revenue
| ||
What's the estimated current size of the total addressable market? | $1,300,000,000 | Here, the total addressable market (TAM) is defined as the global brokerage market, and based on a number of assumptions[Note 1], it is estimated that the size of the market as of today (6th May 2023), in terms of revenue, is $1.3 trillion. |
What is the estimated company lifespan? | 50 years | Freetrade employs around 110,000, making the company a large organisation (more than 10,000 employees), and research shows that the average lifespan of a large corporation is around 50 years.[10] |
What's the estimated annual growth rate of the total addressable market over the lifecycle of the company? | 3% | Research shows that the growth rate of the global automotive market (i.e. the total addressable market) is similar to the growth rate of global gross domestic product[11], which has averaged (medium) around 3% per year in the last 20 years (2001 to 2022)[12]. |
What's the estimated company peak market share? | 10% | The Stockhub users estimate that especially given the leadership of the company, the peak market share of Freetrade is around 10%, and, therefore, suggests using the share amount here. As of 31st December 2021, Freetrade's current share of the market is estimated at around 1.8%. |
Which distribution function do you want to use to estimate company revenue? | Gaussian | Research suggests that the revenue pattern of companies is similar to the pattern produced by the Gaussian distribution function (i.e. the revenue distribution is bell shaped)[13], so the Stockhub users suggest using that function here. |
What's the estimated standard deviation of company revenue? | 6 years | Another way of asking this question is this way: within how many years either side of the mean does 68% of revenue occur? Based on Freetrade's current revenue amount (i.e. £12.68 million) and Freetrade's estimated lifespan (i.e. 50 years) and Freetrade's estimated current stage of its lifecycle (i.e. introduction stage), the Stockhub users suggest using 6 years (i.e. 68% of all sales happen within 6 years either side of the mean year), so that's what's used here. |
Growth stages
| ||
How many main stages of growth is the company expected to go through? | 4 stages | Research suggests that a company typically goes through four distinct stages of cash flow growth.[14] Research also shows that incorporating those stages into the discounted cash flow model improves the quality of the model and, ultimately, the quality of the value estimation.[15]
In addition, research shows that a key way to determine the stage which a company is in is by examining the cash flow patterns of the company.[16] A summary of the economic links to cash flow patterns can be found in the appendix of this report. The Stockhub users estimate that with Freetrade's operating cash flows negative (-), investing cash flows negative (-) and its financing cash flows positive (+), the company is in the first stage of growth (i.e. the 'introduction' stage), and, therefore, it has a total of four main stages of growth. Note, to account for one-off events, the three-year average (median) amount was used to calculate the cash flows. |
What proportion of the company lifecycle is represented by growth stage 1? | 30% | Research suggests 30%.[17] |
What proportion of the company lifecycle is represented by growth stage 2? | 10% | Research suggests 10%.[17] |
What proportion of the company lifecycle is represented by growth stage 3? | 20% | Research suggests 20%.[17] |
What proportion of the company lifecycle is represented by growth stage 4? | 40% | Research suggests 40%.[17] |
Growth stage 1
| ||
Cost of goods sold as a proportion of revenue (%) | 79% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 1)[18], and the margin for its peers is 79%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Operating expenses as a proportion of revenue (%) | 15% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 1)[18], and the margin for its peers is 15%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Tax rate (%) | 11% | Research suggests that it's best to use a similar rate as the one used by peers that are in the same growth stage (i.e. growth stage 1)[18], and the rate for its peers is 11%. |
Depreciation and amortisation as a proportion of revenue (%) | 7% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 1)[18], and the margin for its peers is 7%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Fixed capital as a proportion of revenue (%) | 10% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)[18], and the amount for its peers is 10%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Working capital as a proportion of revenue (%) | 15% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)[18], and the amount for its peers is 15%. |
Net borrowing ($000) | Zero | Stockhub suggests that for simplicity, the net borrowing figure is zero. |
Interest amount ($000) | Zero | Stockhub suggests that for simplicity, the interest amount figure is zero. |
Growth stage 2
| ||
Cost of goods sold as a proportion of revenue (%) | 79% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 2)[18], and the margin for its peers is 79%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Operating expenses as a proportion of revenue (%) | 15% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 2)[18], and the margin for its peers is 15%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Tax rate (%) | 11% | Research suggests that it's best to use a similar rate as the one used by peers that are in the same growth stage (i.e. growth stage 2)[18], and the rate for its peers is 11%. |
Depreciation and amortisation as a proportion of revenue (%) | 7% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 2)[18], and the margin for its peers is 7%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Fixed capital as a proportion of revenue (%) | 10% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2)[18], and the amount for its peers is 10%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Working capital as a proportion of revenue (%) | 15% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2)[18], and the amount for its peers is 15%. |
Net borrowing ($000) | Zero | Stockhub suggests that for simplicity, the net borrowing figure is zero. |
Interest amount ($000) | Zero | Stockhub suggests that for simplicity, the interest amount figure is zero. |
Growth stage 3
| ||
Cost of goods sold as a proportion of revenue (%) | 62% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 3)[18], and the margin for its peers is 62%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Operating expenses as a proportion of revenue (%) | 13% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 3)[18], and the margin for its peers is 13%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Tax rate (%) | 14% | Research suggests that it's best to use a similar rate as the one used by peers that are in the same growth stage (i.e. growth stage 3)[18], and the rate for its peers is 14%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Depreciation and amortisation as a proportion of revenue (%) | 4% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)[18], and the amount for its peers is 4%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Fixed capital as a proportion of revenue (%) | 3% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)[18], and the amount for its peers is 3%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Working capital as a proportion of revenue (%) | 10% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4)[18], and the amount for its peers is 10%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Net borrowing ($000) | Zero | The Stockhub users suggest that for simplicity, the net borrowing figure is zero. |
Interest amount ($000) | Zero | The Stockhub users suggest that for simplicity, the interest amount figure is zero. |
Growth stage 4
| ||
Cost of goods sold as a proportion of revenue (%) | 99% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 4)[18], and the margin for its peers is 99%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Operating expenses as a proportion of revenue (%) | 15% | Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 4)[18], and the margin for its peers is 15%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Tax rate (%) | 0% | Research suggests that it's best to use a similar rate as the one used by peers that are in the same growth stage (i.e. growth stage 4)[18], and the rate for its peers is 0%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Depreciation and amortisation as a proportion of revenue (%) | 37% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4)[18], and the amount for its peers is 37%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Fixed capital as a proportion of revenue (%) | 1% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4)[18], and the amount for its peers is 1%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Working capital as a proportion of revenue (%) | 10% | Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4)[18], and the amount for its peers is 10%. Information on the peers and the calculation of the figure used here can be found in the appendix of this report. |
Net borrowing ($000) | Zero | The Stockhub users suggest that for simplicity, the net borrowing figure is zero. |
Interest amount ($000) | Zero | The Stockhub users suggest that for simplicity, the interest amount figure is zero. |
Risks
As with any investment, investing in Freetrade carries a level of risk. Overall, based on the key risks highlighted below, the degree of risk associated with an investment in Freetrade is higher than in a company that's trading on a public market (such as Hargreaves Lansdown).
Early-stage investment
Freetrade is at one of the earliest stages of the business lifecycle, and the failure rate of companies at that stage is usually much higher than those at a later stage. As of 2022, 57% of companies that are incorporated in the United Kingdom fail within the first five years of the companies incorporation, according to the Office for National Statistics.[19]
Illiquid investment
The number of transactions in shares of private companies is usually significantly lower than in public companies, typically resulting in it taking longer to sell shares in private companies at a price that is at least equal to the price that the shares were bought at. Accordingly, the Freetrade investment opportunity is considered to be higher risk than more liquid companies.
Valuation
Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach.; nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the using the relative valuation approach (the valuation based on the relative approach can be found in the appendix of this report).
Freetrade has never paid a dividend and is not expected to do so for the foreseeable future. Accordingly, the Stockhub users suggest using the free cash flow valuation method, rather than the dividend discount model or any other method.
What's the expected return of an investment in the company?
The Stockhub users estimate that the expected return of an investment in the company over the next five years is negative 24%. In other words, an £1,000 investment in the company is expected to return £760 in five years time. The assumptions used to estimate the return figure can be found in the table below.
Assuming that a suitable return level over five years is 10% per year and Freetrade achieves its expected return level (of negative 24%), then an investment in the company is considered to be an 'unsuitable' one.
What are the assumptions used to estimate the return?
Description | Value | Commentary |
---|---|---|
Which valuation model do you want to use? | Discounted cash flow | Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach[20], so that's the approach that he Stockhub users suggest to use here; nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the using the relative valuation approach (the valuation based on the relative approach can be found in the appendix of this report).
Freetrade has never paid cash dividends, and on 7th February 2022, it said that it currently does not anticipate paying any cash dividends in the foreseeable future. Accordingly, the Stockhub users suggest using the free cash flow valuation method (rather than the dividend discount model). |
Which financial forecasts to use? | Stockhub | The only available long-term forecasts (i.e. >15 years) are the ones that are supplied by the Stockhub users (the forecasts can be found in the financials section of this report), so the Stockhub users suggest using those. |
Growth stage 1
| ||
Discount rate (%) | 15% | There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |
Probability of success (%) | 90% | Research suggests that a suitable rate for a company in this growth stage (i.e. stage 1) is 90%. |
Growth stage 2
| ||
Discount rate (%) | 15% | There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |
Probability of success (%) | 90% | Research suggests that a suitable rate for a company in this growth stage (i.e. stage 2) is 90%. |
Growth stage 3
| ||
Discount rate (%) | 10% | There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |
Probability of success (%) | 100% | Research suggests that a suitable rate for a company in this growth stage (i.e. stage 3) is 100%. |
Growth stage 4
| ||
Discount rate (%) | 10% | There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |
Probability of success (%) | 100% | Research suggests that a suitable rate for a company in this growth stage (i.e. stage 4) is 100%. |
Other key inputs
| ||
What's the current value of the company? | $950.54 billion | As at 5th June 2022, the current value of the Freetrade company is $950.54 billion. |
Which time period do you want to use to estimate the expected return? | Between now and five years time | Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years.[21] Accordingly, Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time. |
Sensitive analysis
The main inputs that result in the greatest change in the expected return of the Freetrade investment are, in order of importance (from highest to lowest):
- The size of the total addressable market (the default size is $1.3 trillion);
- Freetrade peak market share (the default share is 10%); and
- The discount rate (the default time-weighted average rate is 10%).
The impact of a 50% change in those main inputs to the expected return of the Freetrade investment is shown in the table below.
Main input | 50% worse | Unchanged | 50% better |
---|---|---|---|
The size of the total addressable market | N/A | (24%) | N/A |
Freetrade peak market share | N/A | (24%) | N/A |
The discount rate | N/A | (24%) | N/A |
Appendix
Relative valuation approach
As noted earlier in this report, research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that Stockhub suggests using to determine the estimated value of the company (the valuation based on the discounted cash flow approach can be found in the valuation section of this report); nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the relative valuation approach.
What's the expected return of an investment in Freetrade using the relative valuation approach?
Accordingly, Stockhub estimates that the expected return of an investment in Freetrade Inc over the next five years is 4.4x. In other words, an £1,000 investment in the company is expected to return £4,400 in five years time. The assumptions used to estimate the return figure can be found in the table below.
Assuming that a suitable return level over five years is 10% per year and Freetrade achieves its expected return level (of 4.4x), then an investment in the company is considered to be a 'suitable' one.
What are the assumptions used to estimate the return figure?
Description | Value | Commentary |
---|---|---|
Which type of multiple do you want to use? | Growth-adjusted EV/sales | For the numerator, the Stockhub users believe that to account for the different financial leverage levels of its peers, it's best to use enterprise value (EV), rather than price. For the denominator, the Stockhub users believe that because it expects Freetrade to reinvest almost all of its revenue back into the business over the five year forecast period and therefore its earnings are expected to be abnormally low over the period, it's best to use sales. Accordingly, the Stockhub users suggest valuing its company using the EV/sales ratio. However, the Stockhub users think that to take into account the different business lifecycle stages of its peers, the most suitable valuation multiple to use is the growth-adjusted EV/sales multiple, rather than the EV/sales multiple. |
In regards to the growth-adjusted EV/sales multiple, for the sales figure, which year to you want to use? | Year 1 | Stockhub suggests that with sales forecast to grow exponential over the five year forecast period, it's best to use forward-looking data, rather than historic data.
In regards to the growth-adjusted EV/sales multiple, for the sales figure, Stockhub suggests that in order to account for the forecasted exponential growth of the business, it's best to use one at the end of the forecast period (i.e. Year 5). |
In regards to the growth-adjusted EV/sales multiple, for the sales growth figure, which year(s) do you want to use? | Year 2 to 4, from now | Stockhub suggests that for the sales growth figure, it's best to use Year 2 to 4. |
In regards to the growth-adjusted EV/sales multiple, what multiple figure do you want to use? | 89x | In Stockhub's view, Freetrade closest peer is Nutmeg. Nutmeg was acquired by JP Morgan in June 2022 for £700 million. |
Which financial forecasts to use? | Stockhub | The only available forecasts are the ones that are supplied by the Stockhub company (the forecasts can be found in the financials section of this report), so Stockhub suggests using those. |
What's the current value of the Stockhub company? | £500 million | As at 21st May 2022, the current value of its company at £500 million. |
Which time period do you want to use to estimate the expected return? | Between now and five years time | Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time. |
Freetrade peer(s)
Investments | Industry | Enterprise value/sales | 3-year revenue growth rates (%) | (Revenue) growth-adjusted enterprise value/sales ratio |
---|---|---|---|---|
Hargreaves Lansdown | 5.34x | |||
Robinhood | (3.52x) | |||
Year | 1[22] | 2 | 3 | 4 | 5 | 6 | 7[23] |
---|---|---|---|---|---|---|---|
Year end date | 31/12/2015 | 31/12/2016 | 31/12/2017 | 31/12/2018 | 31/12/2019 | 31/12/2020 | 31/12/2021 |
Historic | Historic | Historic | Historic | Historic | Historic | Historic | |
Profit and loss | |||||||
Revenue (£'000) | 925 | 3,081 | 124,077 | 138,685 | |||
Gross profit (£'000) | 124,077 | 138,685 | |||||
Other operating income | |||||||
Administrative expenses | |||||||
Profit from operations | 345 | 1,603 | |||||
Finance income | |||||||
Finance expense | |||||||
Profit before tax | |||||||
Tax expense | |||||||
Profit for the year | |||||||
Exchange (losses)/gains arising on translation on foreign operations | |||||||
Total comprehensive income | |||||||
Balance sheet | |||||||
Cash flow statement | |||||||
Net cash from/(used in) operating activities | 7,306 | (9.342) | 91,358 | ||||
Net cash from/(used in) investing activities | 121 | (1,767) | (1,564) | ||||
Net cash from/(used in) financing activities | (3,902) | 7,007 | 370 |
Funding History[24]
As of November 24th 2021, the company held a valuation of £658 million. However, it has since executed two funding rounds through debt financing instead of equity, which hints at a potential decrease in its valuation from the previous £658 million.
Date announced | Investment type | Post money valuation | Amount | No. of investors |
---|---|---|---|---|
15/09/2022 | Equity Crowdfunding | - | US$1,733,820.00 | - |
20/05/2022 | Debt Financing | - | £30,000,000.00 | 6 |
24/11/2021 | Equity Crowdfunding | £658,363,176.00 | £8,363,176.00 | - |
23/03/2021 | Series B | US$345,057,713.00 | £35,000,000.00 | 4 |
14/05/2020 | Equity Crowdfunding | - | £7,099,999.00 | - |
31/10/2019 | Series A | - | £12,000,000.00 | 1 |
25/06/2019 | Equity Crowdfunding | - | £3,793,410.00 | 1 |
25/04/2019 | Equity Crowdfunding | - | US$1,927,630.00 | 1 |
29/07/2018 | Equity Crowdfunding | £46,516,630.00 | £3,516,630.00 | 1 |
18/05/2018 | Pre Seed | - | - | 2 |
05/03/2017 | Equity Crowdfunding | - | £1,071,850.00 | 4 |
01/03/2017 | Seed | - | - | - |
28/07/2016 | Equity Crowdfunding | £2,069,980.00 | £169,980.00 | - |
Economic links to cash flow patterns
Cash flow type | Introduction | Growth | Shake out | Mature | Decline |
---|---|---|---|---|---|
Operating | - | + | +/- | + | - |
Investing | - | - | +/- | - | + |
Financing | + | + | +/- | - | +/- |
Other information
Freetrade was unsuccessful in its 'Freetrade' word application in the EU.[25] Does this mean that Freetrade has to pay the trademark holder a fee to use the 'Freetrade' word in the EU?
Freetrade | Trading 212 | |
---|---|---|
Austria | No | Yes[26] |
Bulgaria | No | Yes[26] |
Croatia | No | Yes[26] |
Cyprus | No | Yes[26] |
Czech Republic | No | Yes[26] |
Denmark | No | Yes[26] |
Estonia | No | Yes[26] |
Finland | No | Yes[26] |
France | No | Yes[26] |
French Guiana | No | Yes[26] |
Gibraltar | No | Yes[26] |
Greece | No | Yes[26] |
Guadeloupe | No | Yes[26] |
Guernsey | No | Yes[26] |
Hungary | No | Yes[26] |
Iceland | No | Yes[26] |
Ireland | Yes[27] | Yes[26] |
Isle of Man | No | Yes[26] |
Italy | No | Yes[26] |
Jersey | No | Yes[26] |
Latvia | No | Yes[26] |
Liechtenstein | No | Yes[26] |
Lithuania | No | Yes[26] |
Luxembourg | No | Yes[26] |
Malta | No | Yes[26] |
Martinique | No | Yes[26] |
Mayotte | No | Yes[26] |
Netherlands | Yes[27] | Yes[26] |
Norway | No | Yes[26] |
Poland | No | Yes[26] |
Portugal | No | Yes[26] |
Reunion | No | Yes[26] |
Romania | No | Yes[26] |
Slovakia | No | Yes[26] |
Slovenia | No | Yes[26] |
Spain | No | Yes[26] |
Sweden | No | Yes[26] |
Switzerland | No | Yes[26] |
United Kingdom | Yes[28] | Yes[26] |
Actions
To invest in Freetrade, click here.
To contact Freetrade, click here.
References and notes
- ↑ https://freetrade.io/about
- ↑ https://www.researchandmarkets.com/reports/5141120/securities-brokerages-and-stock-exchanges
- ↑ https://freetrade.io/stock-list#stock-list-table
- ↑ https://www.trading212.com/
- ↑ https://play.google.com/store/apps/details?id=com.avuscapital.trading212
- ↑ https://find-and-update.company-information.service.gov.uk/company/09797821
- ↑ Assets under management is the total value of securities and cash balances administered and managed by Freetrade on behalf of its users.
- ↑ Trading volumes are the total value of executed orders placed by Freetrade users.
- ↑ https://www.crunchbase.com/organization/freetrade-limited/company_financials
- ↑ Stadler, Enduring Success, 3–5.
- ↑ http://www.robertpicard.net/files/econgrowthandadvertising.pdf
- ↑ https://www.macrotrends.net/countries/WLD/world/gdp-growth-rate
- ↑ http://escml.umd.edu/Papers/ObsCPMT.pdf
- ↑ Levie J, Lichtenstein BB (2010) A terminal assessment of stages theory: Introducing a dynamic approach to entrepreneurship. Entrepreneurship: Theory & Practice 34(2): 317–350. https://doi.org/10.1111/j.1540-6520.2010.00377.x
- ↑ Stef Hinfelaar et al.:, 2019.
- ↑ Dickinson, 2010.
- ↑ 17.0 17.1 17.2 17.3 http://escml.umd.edu/Papers/ObsCPMT.pdf
- ↑ 18.00 18.01 18.02 18.03 18.04 18.05 18.06 18.07 18.08 18.09 18.10 18.11 18.12 18.13 18.14 18.15 18.16 18.17 18.18 18.19 18.20 18.21 18.22 18.23 http://people.stern.nyu.edu/adamodar/pdfiles/papers/younggrowth.pdf
- ↑ https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/businessdemography/2020#the-south-west-continued-to-have-the-highest-five-year-survival-rate
- ↑ Demirakos et al., 2010; Gleason et al., 2013
- ↑ https://www.newyorkfed.org/mediabrary/media/medialibrary/media/research/staff_reports/research_papers/9809.pdf
- ↑ https://s3.eu-west-2.amazonaws.com/document-api-images-live.ch.gov.uk/docs/VjHMtIQiiQi__nVCWAt11Y5huQG68koLl03pvpnqrn0/application-pdf?X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=ASIAWRGBDBV3KS3H3G5V%2F20230606%2Feu-west-2%2Fs3%2Faws4_request&X-Amz-Date=20230606T213520Z&X-Amz-Expires=60&X-Amz-Security-Token=IQoJb3JpZ2luX2VjEAMaCWV1LXdlc3QtMiJIMEYCIQC660r%2Bjx4D8MAt7dZnQyI4rQKB%2ByjmjuPvdqPe%2FzG5gwIhAMWx9BAf15tgFNPWA30ZMAQoITU1FekaZU4DdaDpbqpBKroFCEwQBBoMNDQ5MjI5MDMyODIyIgxTLwy1663v14A2ya4qlwW716KZyuhql1qyYzIKJqYYB3LoPM5dO6SP%2BGh1aYozdNJq7ZXCxOATczExlzncRJDmLWz0z1CurY9ZplLg4eiabGEMU0sZQshK4gKgagQ1A4rNWijM5fefc0CIoE%2FanqRcqu95iDs%2FiQofP48NNSqCxwcNUcBk1sSojK4RPJIlJxb5AeU2khPA1ldd80lrLdDrLswPOtjjyzLenNFGf5q2ArWweQL%2FzvPIg%2FelxdUzd91W1PLmU%2BBXfDEw%2BXdnD25AB2%2BLhij7Ueg8hc9hl0wSikQ6%2BLXpQyJBlgy0sURS0k2FSsEDv35cmdHX%2BTG0jUMQvdeKRy7FhHZhp%2BkcAnTMXoD5Q8flHUeigOAM1H4Upeukj%2FQvHxeIJwJECydGsGxed8x8uzREXYJPoijgRJjaXIMQXPY%2FwZ%2F0uK0iZnNwLPdQ3iUfwFFr5Z8LJB22iJA0WQOGVXtrWOPm2ePOkVz7kYYVYYFWaUKsFJXoTz1ddQ6yxrlXJELpXwOqClKe%2B2jXqA%2FPPjGqJzhxN08oKsE4R1tI%2F5XO8CkkVt1j9dzkcg3j46oz%2Frah5op4BvY%2BZ5SwJKe1k7IAjzerriBgvb0nevlWE%2B2M7P6wX0xqaFh28yzraDWif0VYhqwWbxm4Fa1QooHBTDLNSHcUKAPrWMfa8dA3OKIgOqybGtrBu%2FGIcsBkEXOajDjVE5OlmQakV%2Brz8XRPYEbzMMNuSawNwrv8NW3Mm7mb8y%2Bivq72a4YuaqwRhPPXv7ZJMPBs48hgjH8lRNMqmyK6FLaEIDyFLAGiRpXCTsaRyDqA7ydsGd4sdEUKzlAwpXzKH3ZrR%2B8webQv4S4Mo7lY9XmLXF1a4UEjiX6MNYLQfhpEs6WfAIL%2B6CiR7U1PfuQwiIf%2BowY6sAHe%2B%2FOG%2FE7AbAx8JhLgEhcGzWkFdOHiC0G5h%2Brx6a7s%2BKDx6Y2uB%2FH8Iz2BvGmuyJywGfydIu%2BpuBpyXDJIiSHEaPXgdem9Vr1qfWp4DgAKBDqbXXynyVzhBfIcTshNhDAV%2FeCRyk1sMW8wOGvkXh09tP6hekKWL84gHFuzpO5P2TD5ssECMlD2mzAKzgG%2FJ4m6s1vPE6uS%2F7zLhcjceOfFo1CH2Vzib3s5ZkCMSQo%2Bbg%3D%3D&X-Amz-SignedHeaders=host&response-content-disposition=inline%3Bfilename%3D%22companies_house_document.pdf%22&X-Amz-Signature=b2374cf4a6daa79a50613961fbeed5cee094a9ab08c59ad284c7ee50ff859a78
- ↑ https://s3.eu-west-2.amazonaws.com/document-api-images-live.ch.gov.uk/docs/TSm136YZkgOVAft-B377F-NKlBy9iC-6ZBi-J0I__mk/application-pdf?X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=ASIAWRGBDBV3KS3H3G5V%2F20230606%2Feu-west-2%2Fs3%2Faws4_request&X-Amz-Date=20230606T211732Z&X-Amz-Expires=60&X-Amz-Security-Token=IQoJb3JpZ2luX2VjEAMaCWV1LXdlc3QtMiJIMEYCIQC660r%2Bjx4D8MAt7dZnQyI4rQKB%2ByjmjuPvdqPe%2FzG5gwIhAMWx9BAf15tgFNPWA30ZMAQoITU1FekaZU4DdaDpbqpBKroFCEwQBBoMNDQ5MjI5MDMyODIyIgxTLwy1663v14A2ya4qlwW716KZyuhql1qyYzIKJqYYB3LoPM5dO6SP%2BGh1aYozdNJq7ZXCxOATczExlzncRJDmLWz0z1CurY9ZplLg4eiabGEMU0sZQshK4gKgagQ1A4rNWijM5fefc0CIoE%2FanqRcqu95iDs%2FiQofP48NNSqCxwcNUcBk1sSojK4RPJIlJxb5AeU2khPA1ldd80lrLdDrLswPOtjjyzLenNFGf5q2ArWweQL%2FzvPIg%2FelxdUzd91W1PLmU%2BBXfDEw%2BXdnD25AB2%2BLhij7Ueg8hc9hl0wSikQ6%2BLXpQyJBlgy0sURS0k2FSsEDv35cmdHX%2BTG0jUMQvdeKRy7FhHZhp%2BkcAnTMXoD5Q8flHUeigOAM1H4Upeukj%2FQvHxeIJwJECydGsGxed8x8uzREXYJPoijgRJjaXIMQXPY%2FwZ%2F0uK0iZnNwLPdQ3iUfwFFr5Z8LJB22iJA0WQOGVXtrWOPm2ePOkVz7kYYVYYFWaUKsFJXoTz1ddQ6yxrlXJELpXwOqClKe%2B2jXqA%2FPPjGqJzhxN08oKsE4R1tI%2F5XO8CkkVt1j9dzkcg3j46oz%2Frah5op4BvY%2BZ5SwJKe1k7IAjzerriBgvb0nevlWE%2B2M7P6wX0xqaFh28yzraDWif0VYhqwWbxm4Fa1QooHBTDLNSHcUKAPrWMfa8dA3OKIgOqybGtrBu%2FGIcsBkEXOajDjVE5OlmQakV%2Brz8XRPYEbzMMNuSawNwrv8NW3Mm7mb8y%2Bivq72a4YuaqwRhPPXv7ZJMPBs48hgjH8lRNMqmyK6FLaEIDyFLAGiRpXCTsaRyDqA7ydsGd4sdEUKzlAwpXzKH3ZrR%2B8webQv4S4Mo7lY9XmLXF1a4UEjiX6MNYLQfhpEs6WfAIL%2B6CiR7U1PfuQwiIf%2BowY6sAHe%2B%2FOG%2FE7AbAx8JhLgEhcGzWkFdOHiC0G5h%2Brx6a7s%2BKDx6Y2uB%2FH8Iz2BvGmuyJywGfydIu%2BpuBpyXDJIiSHEaPXgdem9Vr1qfWp4DgAKBDqbXXynyVzhBfIcTshNhDAV%2FeCRyk1sMW8wOGvkXh09tP6hekKWL84gHFuzpO5P2TD5ssECMlD2mzAKzgG%2FJ4m6s1vPE6uS%2F7zLhcjceOfFo1CH2Vzib3s5ZkCMSQo%2Bbg%3D%3D&X-Amz-SignedHeaders=host&response-content-disposition=inline%3Bfilename%3D%22companies_house_document.pdf%22&X-Amz-Signature=d6d6e64d192d38e0d55e9784f1eeaea2fc9d75fc7a93e9c93081aa1ac5c5bc57
- ↑ https://www.crunchbase.com/organization/freetrade-limited
- ↑ https://www.trademarkelite.com/europe/trademark/trademark-detail/014989172/FREETRADE
- ↑ 26.00 26.01 26.02 26.03 26.04 26.05 26.06 26.07 26.08 26.09 26.10 26.11 26.12 26.13 26.14 26.15 26.16 26.17 26.18 26.19 26.20 26.21 26.22 26.23 26.24 26.25 26.26 26.27 26.28 26.29 26.30 26.31 26.32 26.33 26.34 26.35 26.36 26.37 26.38 https://globefunder.com/trading-212-countries/
- ↑ 27.0 27.1 https://www.financemagnates.com/forex/brokers/freetrade-enters-netherland-ireland-with-zero-free-services/
- ↑ https://help.freetrade.io/en/articles/1794457-which-countries-is-freetrade-available-in
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