A Tale of Two Brokerages: FUTU and TIGR by the Numbers

FUTU turned profitable in 2018, while TIGR continued to report losses. The two companies aim to offer a “one-stop-shop” for both the seasoned and the novice investor.

Author: Anna Vodopyanova   

Ahead of the earnings period for the first quarter, heavily impacted by the Covid-19, we take a closer look at two companies operating in China's fintech industry and gaining traction in the United States.

They are Futu Inc. (Nasdaq: FUTU) and Up Fintech (Nasdaq: TIGR), two online trading platforms.

Side-by-side, their 2019 annual results are as follows:

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FUTU turned profitable in 2018, while TIGR continued to report losses. That's partly because TIGR has relied on third-party service providers and business partners while FUTU operates a closed-loop system. Having obtained a stack of operating licenses early on, FUTU has its own clients, assets, and clearing abilities— the company is not dependent upon third parties to execute its trades.

In addition to the revenue figures, another significant difference between the rivals, as the table shows, is in the expense figures. Expenses and costs at FUTU have increased across all departments, whereas TIGR noted lower expenses in two segments: marketing and branding and employee compensation and benefits due to a one-time share-based compensation expense in 2018.

Focus on User-friendliness

Both FUTU and TIGR have developed an online platform offering a wide range of products and services, including securities trading, investor education, stock analyses, and user discussions. The two strive to engage investors beyond simply making trades, thus enhancing user loyalty.

In terms of user base and trading volume, fourth-quarter results are as follows:

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TIGR held a market share of about 58.4% in 2017, in terms of online investing for Chinese customers globally, according to the company's prospectus.

Meanwhile, 2019 was the year that FUTU achieved significant user growth in its base city, Hong Kong. Just in the first quarter, the number of its paying users in Hong Kong doubled, outpacing the increase in China-based clients. At the time, Futu's chief financial officer, Arthur Chen, told CW that was also driven by Hong Kong's tech-oriented initiatives such as a fast payment and easy money transfer system.

"I think the reason number one for our user growth is: we maintain a very good product," Chen also said. "The beauty of our brokerage is that despite the markets' volatility, our clients are still very loyal."

Futu's Trading App NiuNiu Gets a "10"

In June 2019, CapitalWatch spoke to two long-time users of FUTU's trading platform, Da Liu and Vicky Wu. Both said they use the app mainly for buying and monitoring stocks in the U.S and claim that NiuNiu's platform provides the best trading experience compared with other trading platforms.

Liu said he explored all available trading apps before settling on Futu's NiuNiu platform. He uses the platform during opportune times for trading in specific sectors like natural gas. He found NiuNiu to be "very stable" compared to its peers that often went down and had software bugs. He called NiuNiu's design "very user-friendly," with "clear parameters and guidance."

Liu also said he was impressed by the "very sophisticated dynamic indicators of market sentiments" on the app. He rated NiuNiu a "8.5 out of 10."

Wu rated NiuNiu's app a "10." She uses the app several times a day. If the market is bearish and she is not looking to trade, she surfs the social community for comments. She also participates in user discussions and even shared a stock chart she built using a tool on the PC version of Futu's platform. "It was great fun," Wu said.

Overall, Wu said Futu's NiuNiu app has "fantastic usability." She said she has grown from a novice to an informed investor by using the platform's technical indicators and financial analysis.

Beyond Stock Trading

Both FUTU and TIGR get their revenues from commission fees for securities trading. However, the two companies have expanded into other areas – both geographically and in the industry vertical. Last year, FUTU launched a wealth management platform, Money Plus, offering a number of fixed income and equity funds, as well as money market funds.

FUTU also offers corporate services to institutional clients, which includes establishing and administering the platforms of their employee stock option plans (ESOP) and providing IPO subscription services.

In the United States, FUTU has launched the mobile trading platform moomoo in free beta version at the end of 2018 from its office in Silicon Valley. Eventually, FUTU intends to deliver to U.S. investors all the functions of its Hong Kong counterpart, which allows customers to trade stocks across mainland China, Hong Kong, and New York. It is, however, facing intense competition from established U.S. firms, some of which don't charge commission on stock trades.

TIGR, meanwhile, has been catching up. In late 2019, it launched Cash Plus, which invests in treasury bonds, investment-grade bonds, and bond ETFs. Last month, TIGR launched Fund Mall for investing in global mutual funds. The company has also been operating an ETF called the "UP Fintech China-U.S. Internet Titans ETF" (Nasdaq: TTTN). TTTN offers exposure to an index of 20 leading global internet companies and helps TIGR users learn about ETF investing.

TIGR also provides ESOP management services and IPO subscription services. The company recently announced it was one of the underwriters on 12 Chinese listings in New York in 2019. TIGR maintains an office in the city.

Both FUTU and TIGR hold a clearing license in the United States. FUTU announced in June 2019 that the U.S. SEC and the Financial Industry Regulatory Authority (FINRA) have granted a clearing license to its wholly-owned U.S. subsidiary. A month later, TIGR obtained a self-clearing license in the U.S. through the acquisition of Marsco Investment Corp. for $9.4 million.

Two Companies, One-Stop Shop

Both online trading platforms aspire to become the one-stop-shop for Chinese investors globally, however, in China and Hong Kong, FUTU has focused specifically on the affluent class.

Both companies debuted in public trading in March 2019. Tencent-backed Futu raised about $170 million in its IPO and the concurrent private placement of shares. Initially issued at $12 per American depositary share on March 8, 2019, FUTU stock today trades near $11.

Up Fintech, which is also known as Tiger Brokers and has been backed by Xiaomi Corp. (HKEX: 1810), raised $104 million. The company sold 13 million ADSs priced at $8 each on March 20, 2019. Now, its stock is trading just under $3 per share.

FUTU said it expects to release first quarter financial results on May 14.

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