Wealthsimple’s growth stalls in second quarter, shareholder IGM reveals after slashing valuation by nearly half

The Toronto headquarters of robo-advisor Wealthsimple seen earlier this year.Eric Akaoka/The Globe and Mail

Wealthsimple Technologies Inc.’s explosive growth over the past few years has stalled as the company tries to navigate a deteriorating economy.

Data released Friday by its largest shareholder, IGM Financial Inc. IGM-T, shows that Wealthsimple’s customer base, excluding its tax department clients, grew just 2% in the second quarter ended June 30, reaching 1.7 million accounts. Growth in the first half was 10.4%.

In contrast, the number of accounts at Wealthsimple jumped 19.4% in the second quarter of 2021. Wealthsimple’s customer base grew 173% in all of 2021 and more than tripled in 2020.

The current slowdown came as Wealthsimple cut its marketing budget and cut jobs in the quarter.

Wealthsimple’s assets under management, meanwhile, fell 13% from March 31 to June 30 this year, to $16.9 billion, IGM said. This reflects a challenging environment for asset managers; IGM, which owns IG Wealth Management and Mackenzie Investments, saw its assets under management and investments under advisement fall 9.8% to US$242.1 billion from the end of March to June 30.

IGM chief executive James O’Sullivan said on a conference call with analysts on Friday that investment industry buybacks exceeded sales by $21.7 billion in the quarter. , making it “the worst T2 ever”.

His company, which is controlled by Power Corp. of Canada POW-T, said Thursday it had reduced the valuation of its 24% stake in Wealthsimple to $492 million as of June 30, down 47% from $925 million. March 31. IGM valued its stake at $1.153 billion on December 31.

Power, whose affiliated entities collectively own 42.5% of Wealthsimple’s fully diluted shares and hold voting control of the company, announced Friday evening that it had also reduced the value of its holdings in Wealthsimple to $900 million. dollars versus $1.7 billion in March. 31, and $2.1 billion at the end of 2021.

IGM chief financial officer Keith Potter told analysts the devaluation “reflects a continued decline from what we saw in public peer ratings during the quarter”, as well as “revised revenue guidance” from Wealthsimple. He pointed out that even with the devaluation, IGM’s average annual return on investment to date exceeds 40%, including $300 million his company earned when it sold part of its stake last year. last.

The stock price of Wealthsimple’s publicly traded U.S. analogue Robinhood Markets Inc. HOOD-Q is down 83% from its 52-week high.

Mr O’Sullivan said IGM continued to “support Wealthsimple for the long term”, but was evasive when asked if IGM would further fund Wealthsimple, which was largely dependent on funding from IGM and other Power subsidiaries. “It’s just very hard for uh to say what the future might look like,” he replied.

Wealthsimple launched as a robo-advisor in 2015, providing automated online wealth management services to a millennial-focused audience. It began branching out into other financial services in 2018, including a online digital stock trading platform that offered direct access to cryptocurrencies and zero trading commissions.

The company has seen an increase in new retail customers throughout the pandemic and has been a major beneficiary in Canada of rising valuations and investor interest in technology companies . Assets under management grew by more than 90%, on average, in each of the last three years, as millennials flocked to trading platforms to trade meme stocks and cryptocurrencies.

In May 2021, Wealthsimple became one of Canada’s most valued private technology companies when it raised $750 million at a $5 billion valuation.

But Robinhood and Wealthsimple have both been hit with bad news this year. Robinhood announced this week that it would cut its workforce by 23% – its second job cut of the year – and revealed in its second quarter report that it had experienced a drop in the number of monthly active users and of assets under custody. Meanwhile, Wealthsimple laid off 13% of its workforce in June.

In an emailed statement to The Globe and Mail, Wealthsimple spokeswoman Rachael Factor said: “Earlier this year, we made the decision to significantly reduce our growth marketing spend, to focus our resources on what is most important in today’s environment. Our current focus is on our clients: deepening their engagement with us and helping them through difficult times in the financial markets. At some point, the markets will rebound – they always do – and we will react accordingly.

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