Futu Holdings was founded in 2011 and provides online brokerage services in Hong Kong and Mainland China. Through its investing platform “Futubull”, it provides market data, trading services and news feeds of Hong Kong, Mainland China and US stock markets.

  • It offers a fully digitised brokerage platform and it makes money mainly from trade executions and margins financing
  • Their users consist in the emerging affluent Chinese population, taking advantage of generational shift in wealth management

THE MARKET

Household wealth in China is booming and the regulatory environment is opening up.

  • The Boston Consulting Group reports that household wealth in China set to increase by $ 14T by 2023 and reach $ 35T while Credit Suisse places it at $ 39T by 2022. Furthermore, UBS and Financial Times report that China’s asset management industry is set to reach around RMB 47T by 2025, up from RMB 11T in 2017
  • Overall, the regulatory environment in China is becoming more open as access to markets is being provided to foreign institutions and investors

    “If you’re any financial institution, a fund manager big or small, China is now an open market to you […] It is really a high point of openness and capital market development for China” - Fraser Howie, taken from Financial Times

THE PLAN TO WIN

Futu Holdings is betting that the new generation of investors want an investing tool with a well-crafted UI / UX and various social features.

“We have embedded social media tools to create a network centered around our users and provide connectivity to users, investors, companies, analysts, media and key opinion leaders. This fosters the free flow of information, reduces information asymmetry and supports the investing decision-making process. For instance, users can exchange market views, watch live broadcasts of corporate events and participate in investment education courses offered through the NiuNiu Classroom. Importantly, our social network serves as a powerful engagement tool.” - Futu Holdings S1

  • As of December 2019, the daily active users for the social community reached 208k users and these users spent on average 24.5 minutes each day on the platform
  • This strategy drives up user engagement and translates into more commissions for Futu Holdings

FINANCIAL CHECK

  • Futu Holdings’ sales are growing at a 272% YoY (and 164% in previous quarter) and reached $ 122m in Q3 ‘20
  • Its gross margins increased to 81% from 78% in Q2 ‘20 and net income reached $ 52m (versus $ 31m in Q2 ‘20)
  • Net profit margins have now reached 43%, up from 34% in the previous quarter

RISKS

Futu Holdings is competing with bigger names such as Alibaba-backed Ant Group. However, one has to note that Futu Holings is backed by Tencent and Sequoia Capital. Furthermore, the financial technology landscape in Mainland China is gradually opening up as discussed but still subject to the will of governing bodies, as it has been the case with the Ant Group IPO.


BENCHMARK'S TAKE

  • Futu Holdings is growing at a fast clip as it provides the trading tools a new generation of investors require
  • It is taking advantage of the “community” building effect of investing, increasing the time spent on app and the number of trades per day
  • The trading market is set to boom in China as wealth is being built up and the amount of investable assets increases dramatically
  • Regulation is an element to watch for sure and competition from top players such as Alibaba should be monitored

Have we bought a stake? Find out right here:

Full Portfolio
We have invested in over 45 stocks throughout North America, Latin America, Europe and Asia. Typically, we target fast-growing companies (U.S. and global) with a market cap between $ 1B and $ 100B.

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.