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Contract for Difference (CFD) provider Plus500 (LSE:PLUS) watched its share price reach a record high of 683.75 yesterday following release of its Q1 2014 results.
The company, which I call, “the legalized gambling alternative to investing directly in the stock market,” achieved at 207% revenue growth in the first quarter of 2014 over the same period in 2013. That was an income growth from $19,796 million to $60,745 million. Plus500 shares are currently selling at 656.95, down 1.14% from yesterday’s close at 664.50. To help put this into better perspective, the stock closed at 607.50 on April 1st. When the Plus500 share were floated on the AIM in July 2013 they were valued at 120.00 per share. That is a 447.5% increase in just nine months!
Plus500 provides a platform for gambling on the future activity of a company’s share price or even on the ups and downs of an index. Regardless of how others may define the difference, I explain it this way: When you put your money in a stock, you invest in the performance of the company. When you put your money in a CFD you gamble on the performance of the company’s stock.
Given the income generated by Plus500, there appears to be a growing number of people who believe that they can get a quicker, and even a more generous, return on their “investment” by gambling on the movement of a share price. I don’t know the odds of such transactions being successful, but I am relatively sure that the odds depend on the spread.
With CFDs there is no commitment, at least not in terms of true investments. Investors get on the bus and stay on the bus regardless of where the bus goes. Opportunists get on the bus and stay on it as long as it goes where they hoped it would go. Gamblers never get on the bus. They just bet on where it is going to go next.
The oddity of Plus500 is that it is a public company funded, therefore, by investors. That’s where things get really crazy. Investors are riding a bus that stops frequently to pick up or drop off opportunists whilst they are looking out the windows at gamblers standing by the curb placing bets with the bus driver as to where the bus will stop next. Making it even crazier, Plus500 has been returning over 80% of its net profits to its investors through dividends. So the passengers are getting paid to ride the bus!
(Pause to regather my thoughts.)
The CFD concept is getting so popular that Plus500 serviced more than 50,000 active customers during the first quarter of 2014. That’s almost a 50% increase over the first quarter of 2013.The average spend per customer during the quarter was just over $1,200 each. That is more than double Q1 2013.
The CFD business may be popular, in large part, by the fact that it is a cash business and that there is virtually no paperwork compared to acquiring and disposing of shares. That means that transactions also take much less time.
CFDs and companies like Plus500 companies remind me of W.C. Field’s description of women and elephants. “They are marvelous to look at, but I wouldn’t want to own one.”
