ANALYSIS: Up Fintech Makes Enviable Progress on Steady Execution
Up Fintech (TIGR) is preparing to report financial results for its fourth quarter of 2019.
The firm provides China-based clients with the ability to acquire foreign equities via its brokerage platform.
TIGR has made enviable progress across major financial metrics since its IPO in mid-2019, so the stock is worth keeping a close eye on despite the likely Q1 2020 hit due to the coronavirus outbreak.
Beijing-based Up Fintech was founded to enable Chinese clients to more easily trade overseas stocks on U.S., Hong Kong, and other foreign exchanges.
Management is headed by CEO Tianhua Wu, who has been with the firm since 2018 and was previously CEO of Ningxia Rongke.
Principal shareholders include CEO Wu, who will have controlling voting power after the IPO and People Better, Tiger Holdings, IB Global Investments, and Jager Fintech Holding. IB Global Investments is likely the investment arm of Interactive Brokers Group (IBKR).
TIGR offers its services through both a website and mobile app and the firm's business model is to generate commission fees for securities trading transactions as well as earning interest income related to margin financing.
Management claims its service is the ‘largest online platform for trading U.S. securities focusing on Chinese investors globally in terms of trading volume in 2017, with a market share of 58.4%.'
The firm targets the ‘young and affluent' demographic and as of December 31, 2018, 71.5% of its individual customers were under 35 years of age.
The system has also been developed to provide an ‘interactive investment community' that it believes creates a ‘virtuous cycle where users gain knowledge through our community, become increasingly engaged in investing, and therefore have more insights and experience to share.'
Topline revenue by quarter has grown by more than 50% since Q3 2018, as the chart shows below:
(Source: Seeking Alpha)
Operating losses by quarter have been uneven but trending closer to breakeven in Q3 2019:
(Source: Seeking Alpha)
Earnings per share (diluted) have essentially reached breakeven in Q2 and Q3 2019, as the chart shows here:
(Source: Seeking Alpha)
Since its IPO in March 2019, TIGR's stock price has dropped nearly 55% vs. the U.S. Capital Markets index' rise of 19.4% and the overall U.S. market's rise of 20.3%, as the chart below indicates:
(Source: Simply Wall Street)
In its last earnings call, management highlighted its efforts to expand its services to U.S. investors as well as Singapore nationals.
Additionally, the firm said it will in various ancillary wealth management services, including ESOP capabilities, IPO distribution, and other services to provide a more integrated, ‘one-stop-shop' platform for its clients.
On the cost side, the firm seeks to achieve self-clearing status so it can lower its clearing costs and obtain more income from margin and securities lending services.
It hopes to begin these services in Q2 2020, if all goes according to plan.
There has been a recent trend in the U.S. of charging zero commissions for equity trades.
Management doesn't see zero commission pressure on the firm because its products have significant value add features and these zero commission features are solely for cash bought equities.
As to its financial results, the company has grown its annual revenue run rate from $36.8 million in Q3 2018 to $56 million in Q3 2019, an increase of over 52% in the span of one year, so its revenue growth trajectory has been uneven but impressive more recently.
Operating losses, while uneven, have also diminished in the most recent quarters and the company has flirted with earnings breakeven as well.
For investors considering an investment, the wildcard for TIGR will be the effect of the recent coronavirus outbreak on trading activity, especially in Q1 2020, but we won't know those results until May's earnings announcement.
While we await Q4's results announcement in the near term, I'm focused on how negatively affected its Q1 2020 results will be before looking more closely at acquiring a position.
A ‘wait-and-see' approach may have less upside but given the uncertainties of China's economy over the near-term, it may be the prudent course.
(The opinions expressed by contributing analysts do not reflect the position of CapitalWatch or its journalists. The analyst has no positions in any stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)
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