Interview with Smartbroker Holding AG
Interview Smartbroker: On new paths to old goals
time to read: 7 minutes | The interview was conducted by Nico Popp on December 9th, 2022 in Berlin (DE).
CEO | Smartbroker Holding AG
Ritterstraße 11, 10969 Berlin (DE)
+49 (0)30 20 456 500
Table of contents:
2023 will be the year of the strategy shift
news|financial: "You recently unveiled new plans around your Smartbroker 2.0 project and announced a new partner in Baader Bank. Until now, you wanted to become independent of external partners and develop Smartbroker independently. How do you view the change in strategy?"
"[...] The mere fact that we have to write off around EUR 5 million shows that mistakes were made. We have to admit this quite openly to ourselves. [...]" André Kolbinger, CEO, Smartbroker Holding AG
We are correcting a wrong decision made more than a year ago. The mere fact that we have to write off around EUR 5 million shows that mistakes were made. We have to admit this quite openly to ourselves. The question, however, is what the latest decision means for our future. We are optimistic and confident that we are in the best possible position with Baader Bank.
news|financial: "Let's shed some light on the plans for the future. First of all, let's stay with depreciation and amortization. The amount seems low, given the scope of your decision. Is there anything more to come?"
No. We have also drawn a line under the figures. There are no further write-downs in connection with our activities over the past few months. Nevertheless, the amount communicated does, of course, hurt us. One reason the write-off is not higher is that we only have to discard part of the work. We can continue to use many things or adapt them to the new application. That is also why the amount you see as low comes about.
Are solidly financed
news|financial: "In order to classify the figure conclusively, how much cash do you currently have in the bank?"
We have around EUR 28 million in cash and consider ourselves solidly financed for all upcoming tasks. In addition, firstly, we continue to earn money with our portal business. Secondly, thanks to the new partnership with Baader Bank, we have the potential to generate income above and beyond our current potential.
Brokerage - The devil is in the details
news|financial: "You will have to explain this!"
"[...] The agreement with Baader Bank gives us the chance for legal certainty and predictability on the one hand and the potential for increasing revenue per transaction on the other. [...]" André Kolbinger, CEO, Smartbroker Holding AG
Brokerage is complex and characterized by a high degree of regulation. The strategy of my predecessor as CEO was to have the backend (meaning securities processing, editor's note) largely redeveloped externally. This project is behind schedule, and we had to ask ourselves how reliable and predictable the completion is. The agreement with Baader Bank gives us the chance for legal certainty and predictability on the one hand and the potential for increasing revenue per transaction on the other. Baader Bank offers an existing, functioning system that we can use and adapt to our needs. We still want to reach our operating break-even in 2024. These plans take into account marketing expenses to convince at least 75,000 new customers of Smartbroker each year from 2024. When measured against our long-term goals, hardly anything has changed.
Don't want to gloss over anything
news|financial: "In 2022, you have significantly reduced marketing expenditure. Is it fortunate for you that market conditions were not particularly rosy anyway?"
No, we are convinced of our profile as a next-generation broker and would have liked to compete even more strongly for the favour of new customers in 2022. It is not a matter of glossing over events for us. Nor do we want to look too far into the future. Our task now is to successfully implement the strategy we have adopted and lay the foundations for the future. The principle here is: first deliver, then talk.
What the cooperation with Baader Bank will bring
news|financial: "What are the key points of your new orientation already ready for discussion?"
"[...] We remain a full-service provider with attractive conditions. We are simply adding some new features and a modern app as well as a contemporary order screen. [...]" André Kolbinger, CEO, Smartbroker Holding AG
The fact is that thanks to Baader Bank, we receive many services from a single source. This also frees us from regulatory requirements in certain areas. At the same time, we will also become more flexible: We will not only provide the front end and support the customers. We also provide essential middleware parts, including security authentication, order preparation and settlement. This area is important, for example, when it comes to docking cooperation partners, such as trading platforms, to our system. We anticipate that such a step will be much easier in the future.
It is also clear that we will be able to expand our target group: In the future, we will offer junior and joint custody accounts and place an additional focus on business customers. In addition, we will be able to trade the most important cryptocurrencies. The existing range of services and tariffs will remain in place. We want to continue to score in broker comparisons and offer users who are used to many trading venues and good service everything they need. We remain a full-service provider with attractive conditions. We are simply adding some new features and a modern app as well as a contemporary order screen. To the outside world, we act as a smart broker in every area. "Under the hood", Baader Bank supports us with a reliable and powerful backend.
news|financial: "What effects do you expect from the expansion of the target group and the additional asset class crypto?"
We do not want to make a forecast on this. However, it is a fact that the introduction of a trading app, for example, definitely generates higher trading revenues. Since we have been able to convince many ambitious traders and also newcomers with our range of services, we assume that the junior, joint, and business customer accounts will also be well received. We will thus live up to our claim of offering ambitious investors a multi-layered range of products and services to an even greater extent than before.
New marketing opportunities
news|financial: "You have announced that you intend to ramp up marketing again as soon as the new infrastructure is in place. What new opportunities will this create for you?"
"[...] We continue to believe that the path between information and action should be as short as possible. [...]" André Kolbinger, CEO, Smartbroker Holding AG
Yes. We continue to believe that the path between information and action should be as short as possible. The planned new structure actually favors this approach, as there is a clear separation between the tasks that our partners take on and what we do in House. In principle, many ideas around content are feasible. First and foremost, we want to implement these plans on our own sites. However, cooperations with third-party providers are also conceivable. However, the topic of content integration will only come to the fore once we have achieved our goals for 2023 and existing customers are enthusiastically using the new system.
Potential pitfalls of migration
news|financial: "You mentioned the migration of existing customers to the new platform. What is your internal churn rate?"
We calculate the number of customers who do not want to accompany the migration very conservatively. In other words, we set the bounce rate at 10-15%. However, there are good reasons to believe that significantly more customers will join us: First, with the migration, users will finally get what they have been asking for: a powerful app. On top of that comes a wider range of services. In addition, we are quite prepared to make the change palatable for our customers; we already have some ideas. The final argument for a successful migration must be our already very competitive offering. Independent testers are enthusiastic, and customers also value our offering highly. Since it will be even better after the migration, there are good reasons to be optimistic.
Guidance for 2023?
news|financial: "When will the new plans be reflected in the guidance?"
"[...] Investors should keep in mind that Smartbroker AG's portal business will continue to be profitable and that we are taking the right path with our new trading infrastructure to achieve our goals. The end result will be a better product for customers and a more attractive margin for us as a company, with lower technical and regulatory risks. [...]" André Kolbinger, CEO, Smartbroker Holding AG
We will report the figures for the current fiscal year in January. Until we can venture a reliable outlook, we first want to wait for the development of our new infrastructure and migration. While the former should be completed by the summer, it will probably take large parts of the year's second half until all customers have been migrated and we can conclude the project with a clear conscience. As soon as we can venture a serious outlook, we will go public with it. Investors should keep in mind that Smartbroker AG's portal business will continue to be profitable and that we are taking the right path with our new trading infrastructure to achieve our goals. The end result will be a better product for customers and a more attractive margin for us as a company, with lower technical and regulatory risks. The last point, in particular, has been the subject of much discussion over the past few days. 2023 will be a year full of change for us. We are looking forward to it!
news|financial: "Thank you very much for talking to us."