UP Fintech Holding Ltd

NASDAQ:TIGR

Earnings Call Analysis

Record Profits and Expansion Plans

In 2023, the company achieved a historical high with GAAP profits reaching $32.6 million and non-GAAP net income at $42.7 million. While Q4 faced a profit setback due to forex losses, early signs show a more profitable Q1 ahead. The company aims to grow its accounts by 60% in Southeast Asia and maintain strong market shares in regions like Singapore, whilst exploring new markets and introducing virtual asset trading to enhance profitability.

UP Fintech Celebrates NASDAQ Five-Year Milestone with Growth and Profitability

UP Fintech Holding Limited, known for its Tiger Broker platform, has celebrated its fifth anniversary on NASDAQ by reflecting on its technological advancements in the investment industry and global expansion efforts. In particular, the company has made significant strides in diversifying its product offerings and increasing its reach, enhancing both the user base and profitability. During 2023, UP Fintech continued to extend its international presence with a strong foothold in Singapore and a formal entry into the highly competitive Hong Kong market.

Strong Fourth Quarter Financial Performance & Client Asset Growth

The fourth quarter saw UP Fintech posting a 9.6% year-over-year increase in total revenue to USD 70 million, driven by its emphasis on research and development as well as a strong brand presence. This culminated in an impressive annual total revenue of USD 273 million, marking a 21% increase from 2022. Net profit for the year reached USD 32.6 million, with non-GAAP net income climbing to a historic USD 42.7 million. The company also recorded a significant increase in funded accounts, contributing to a notable expansion of total client assets, which more than doubled year-over-year to USD 30.6 billion by the end of 2023.

Expanding Product Line and Investment in Cryptocurrency

UP Fintech actively expanded its product portfolio, introducing innovative features like combo options strategies and Fixed Coupon Notes to cater to sophisticated investors. Marking its entry into the burgeoning crypto space, the company started trading 11 different Bitcoin ETFs and obtained the Hong Kong SFC's approval to include virtual asset trading services, setting the stage for growth in this new asset class within the framework of local regulations.

Adapting to Market Changes with Strategic Customer Acquisition

Despite a quarter-over-quarter bottom-line decrease in Q4 due to noncash foreign exchange losses caused by the U.S. dollar depreciation, UP Fintech has observed an increase in trading activities and client net asset inflow in the early months of 2024. To capitalize on this momentum and improve profitability, the company plans to dynamically adjust its customer acquisition strategies to maintain healthy average revenue per user (ARPU) and profit model.

Future Outlook: Targeting 150,000 New Accounts and Continued Expansion

Looking ahead to 2024, UP Fintech has set an ambitious goal to add 150,000 new funded accounts, with a regional focus on Singapore, Southeast Asia, Australia, New Zealand, the United States, and Hong Kong. The company expects to leverage its existing markets while exploring potential new markets based on emerging opportunities and return on investment. Additionally, UP Fintech plans to improve its product offerings, emphasize virtual asset trading to elevate ARPU and profitability, and cultivate market share in existing regions including Hong Kong, where they've seen promising client asset inflows and high-quality user acquisition.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the UP Fintech Holding Limited Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, March 20, 2024.

I would now like to hand the conference over to your first speaker today, Mr. Aron Lee, the Head of Investor Relations. Thank you. Please go ahead.

[Aron Lee, executive]

Thank you, operator. Hello, everyone, and thank you for joining us on the call today. UP Fintech Holding Limited Fourth Quarter and Full Year 2023 earnings release was distributed earlier today and is available on our website at ir.itigerup.com as well as GLOBE NEWSWIRE Services.

On the call today from UP Fintech are Mr. Wu Tianhua, Chairman and Chief Executive Officer; Mr. John Zeng, Chief Financial Officer; Mr. Huang Lei, CEO of U.S. Tiger Securities; and Mr. Kenny Zhao, our Financial Controller. Mr. Wu will give an overview of our business operations and discuss corporate highlights. Mr. Zeng will then discuss our financial results. They will both be available to answer your questions during the Q&A session that follow their remarks.

Now let me cover the safe harbor. The statements we are about to make contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about factors that could cause actual results to materially differ from those in the forward-looking statements, please refer to our Form 6-K filed today, March 20, 2024, and our annual report on Form 20-F filed on April 26, 2023. We undertake no obligation to update any forward-looking statements, except as required under applicable law.

It is my pleasure to now introduce our Chairman and Chief Executive Officer, Mr. Wu. Mr. Wu will make remarks in Chinese, which will be followed by an English translation. Mr. Wu, please go ahead with your remarks.

[Tianhua Wu, executive]

[Foreign Language].

[Interpreted] Hello, everyone. Thank you for joining the Tiger Brokers Fourth Quarter and Full Year 2023 Earnings Conference Call.

[Foreign Language].

[Interpreted] Today marks the fifth anniversary of Tiger's listing on NASDAQ. During the past 5 years, we committed to our mission that technology redefines global investing and have expanded our business globally to Singapore, Southeast Asia, Australia, New Zealand, the United States, Hong Kong and the United Kingdom.

That has made significant improvement in various aspects, including product offering, industry know-how, user base and profitability. We've also navigated through market turbulence, geopolitical and regulatory uncertainties. This valuable experience will help us to have sustainable growth in the future. As of the end of 2023, the majority of our total plant assets came from users in oversea market. We are proud of our international reach and we'll continue to serve our clients with dedication and innovation.

[Foreign Language].

[Interpreted] In 2023, we continue to advance our internationalization strategy, further solidifying our leading position in Singapore and officially entered Hong Kong. Benefiting from the higher interest rate environment, fourth quarter total revenue reached USD 70 million, and 9.6% increase compared to the same period of last year.

Our full year total revenue amounted to USD 273 million, representing a 21% increase from 2022. Additionally, we saw significant improvement in our bottom line in 2023, primarily due to our brand strength and R&D capabilities, which enabled us to save cost and deploy resources more efficiently. Full year net profit reached USD 32.6 million.

Non-GAAP net profit reached USD 42.7 million, a record high since our company funding and representing a drop of 14.8x and 3.4x of the same period in 2022. In the fourth quarter, due to depreciation of U.S. dollar against other currencies, we recorded a USD 7 million noncash foreign exchange loss versus a USD 2 million foreign exchange gain in the third quarter, resulted in our non-GAAP net income declined quarter-over-quarter to USD 1.1 million.

[Foreign Language].

[Interpreted] In the fourth quarter, we added 39,000 funding accounts, an increase of 58.6% from the previous quarter. The total number of funded accounts for the year reached 123,100 exceeded our annual guidance of 500,000 funded accounts. This majority came from our markets outside of Mainland China.

The total number of funded accounts at the end of 2023 exceeded 900,000, representing a growth of 15.8% compared to the end of last year. In the fourth quarter, by leveraging our strong presence in Singapore, we are working with partners to explore customer acquisition initiatives in the Southeast Asian region, which resulted a rise in quarterly new funded accounts while reducing average CC to a historical low of below USD 150.

In terms of total client assets, the trend of asset inflow remains strong. We saw record USD 8.2 billion net asset inflow this quarter. In addition to USD 3.5 billion mark-to-market gain, total client assets jumped 62.1% quarter-over-quarter and more than doubled year-over-year to USD 30.6 billion at the end of 2023.

The increase in client assets was primarily due to our ongoing product development to meet the needs of institutional clients. Additionally, we are very glad to see the quality of our newly acquired customers further improved in the fourth quarter. The average net asset inflows of newly acquired clients in Singapore was about [ USD 16,000 ] in the fourth quarter, setting a historic high since our launch into Singapore retail market.

[Foreign Language].

[Interpreted] We continue to add new products on our platform to enhance user experience, which we believe is the key to our long-term success. In the fourth quarter, we introduced combo options strategy feature, a very user-friendly product that allows users to execute multi-leg options trades based on our net margin requirements.

Additionally, we launched the Fixed Coupon Notes product, offering professional investors a more diversified wealth management experience. In addition, as crypto is becoming an important asset class globally, it's a natural extension of business as broker-dealer to add this new asset class with Tiger Fintech background and know-how.

In January, we started to offer 11 Bitcoin ETF trading based on local regulatory frameworks. In Hong Kong, Hong Kong SFC lifted our Type 1 license to include virtual asset building services for professional investors. This positions us as 1 of the first mainstream online brokerage firm in Hong Kong to receive approval for the Type 1 license upgrade.

[Foreign Language]

[Interpreted] Our 2B business continues to perform well. In the investment banking service, we underwrote a total of 9, U.S. and Hong Kong IPOs in the fourth quarter, including Shiyue Daotian Group and J&T Express, bringing the total number of U.S. and Hong Kong IPOs underwritten for the year to 28. In our ESOP business, we added 30 new clients in the fourth quarter, brings the total number of ESOP clients served to 535 as of the end of 2023.

[Foreign Language]

[Interpreted] Now I would like to invite our CFO, John, to go over our financials.

[John Zeng, executive]

Thanks, Tianhua and Aron. Let me go through our financial performance for the fourth quarter. All numbers are in U.S. dollar. Total revenue were $70 million this quarter remained flat quarter-over-quarter and increased 9.6% year-over-year. Full year total revenue were $272.5 million increased 20.9% compared to last year. Cash equity take rate was 6.5 bps this quarter, slightly increased from last quarter raising commission revenue, about 60% come from cash equities, 30% from options and the rest comes from futures and the other products.

Now on to costs. Interest expense was $16 million, increased by 123% from same quarter of last year as interest expense and securities lending expense both increased the [indiscernible] rate hike. Execution and recurring expense were $2.2 million, decreased to 44% from the same quarter of last year, primarily due to more efficiency in self-clearing for U.S. and Hong Kong securities.

Employee compensation and benefits expense were $26.5 million, an increase of 8% year-over-year due to an increase of global headcounts. Occupancy, depreciation and amortization expense increased 8.4% to $2.2 million due to increase in revenue. Communication and data expense were $8.5 million, an increase of 21% year-over-year due to the increase in user base and IT-related fees.

Marketing expenses were $5.8 million this quarter, decreased 22% year-over-year as we remain prudent with marketing campaigns. General and administrative expenses were $7.3 million, an increase of 23% year-over-year due to professional service fees recorded in the fourth quarter. Total operating costs were $52.5 million, slightly increased 3.1% from the same quarter of last year. GAAP net loss was $1.8 million. Non-GAAP net income was $1.1 million.

The sequential drop in bottleneck was primarily due to noncash foreign exchange losses resulted from the depreciation of the U.S. dollar during this quarter. For the year of 2023, Total GAAP profit was $32.6 million, and non-GAAP net income was $42.7 million, a historical high in our company's history.

Now I have concluded our presentation. Operator, please open the line for Q&A. Thanks.

[Operator]

[Operator Instructions] Our first question comes from the line of Cindy Wang from China Renaissance.

[Yun-Yin Wang, analyst]

[Foreign Language]

[Interpreted] Thanks for giving this chance to ask questions. So I have 2 questions. First 1 is the net profit has increased significantly in 2023, but profitability in Q4 was dropped sequentially mainly because of the FX loss. So have you seen any improvement in first quarter this year based on the current run rate?

And the second is, could you give us guidance on new funded accounts in 2024 as well as the breakdown of each region and business development strategy. Any new markets you will enter this year?

[John Zeng, executive]

[Foreign Language].

[Interpreted] So the non-GAAP bottom line decreased in the fourth quarter versus the third quarter, there are several factors. So first 1 is for -- our total revenue is flat quarter-over-quarter. But we incur more interest expense during the fourth quarter due to the rate hike cycle.

So the total net revenue decreased $4 million quarter-over-quarter. The second factor is that in the fourth quarter, there are more costs will hit the book, such as professional service fees, so which resulting a $3 million jump in the cost. The third reason is for the foreign exchange losses. So in the first quarter, the U.S. dollar depreciated against RMB and [indiscernible] dollar. So we incurred a noncash $7 million in foreign exchange losses in the fourth quarter versus a $2 million gain in the third quarter.

So combining those 2 factors, so it led to a noncash decrease of our liability on a sequential basis. And in terms of run rate, we have seen an increase in trading activities during the first 2 months of this year. And we also saw very strong client net asset inflow. So given the foreign exchange rate was relatively stable in the first quarter, we expect the profitability in the first quarter will be much better in the fourth quarter. Thanks.

[Tianhua Wu, executive]

[Foreign Language].

[Interpreted] I'll translate after the second question. In 2024, our target is to add 150,000 new fleet accounts. About 60% will come from Singapore and Southeast Asia. Australia, New Zealand market and the United States accounts for 15% each, and Hong Kong market accounts for 10%. This regional breakdown is quite similar to our actual results in 2023 and will adjust the input based on market opportunity and ROI of each region.

And of course, with the target increase from [ 100,000 ] in 2023 to 250,000 in 2024, we would expect the incremental few number to increase from each market accordingly. We believe that the market we have already entered have tremendous potential. Taking Singapore, for example, where Tiger Broker already has relatively high market share. However, there's still significant room for growth. This can be seen from the number and quality of our newly acquired clients in Singapore in the fourth quarter.

In markets like Australia, New Zealand and Hong Kong, we have even more room to improve and expand. So in 2024, our focus will remain on the markets they've already entered by optimizing the efficiency of our R&D resources, introducing more product features including virtual asset trading to enhance our ARPU and profitability.

Additionally, we will also look opportunities to enter new markets based on market conditions. Thank you.

Operator, let's move on to the next question. Thank you.

[Operator]

Our next question comes from the line of Judy Zhang from Citi.

[Judy Zhang, analyst]

[Foreign Language].

I have 2 questions. The first question is regarding the commission and the turnover. We saw the customer AUM has increased significantly in the fourth quarter, but the commission turnover didn't improve that much. what's the underlying reason behind?

And second question is regarding the new funded customer. So the new paying customer has increased a lot Q-on-Q, but the CAC reached to the record low level. Can management share with us what's the -- give us some color on the company's new customer acquisition strategy?

[Tianhua Wu, executive]

[Foreign Language].

[Interpreted] Okay, for the first question. At the end of the fourth quarter, total client assets increased by 62% compared to the previous quarter and more than doubled compared to the end of last year to $30.6 billion. There are a few factors contributing to this growth. Firstly, the rise in asset index and high NIMs in the fourth quarter led to a mark-to-market gain of USD 3.5 billion, our total client asset.

This means that even without considering that asset inflow, our total client assets would have seen an increase of around 15% compared to the previous quarter. Additionally, apart from focusing on the retail market, we have been serving a large number of institutional investors through efforts such as ESOP and investment banking. In the fourth quarter, this efforts gained more trust and recognition from global investors, who transferred their position to our platform, this significantly contributed to the total of $8.2 billion net asset inflow in the fourth quarter.

However, to be honest, some of this institutional investors of venture capital and private equity on primary market, which have lower velocity compared to retail investors of hedge fund. As a result, the contribution of the increased client assets from this kind of institutional investors to our commission revenue was fairly limited in the fourth quarter and so forth.

[Foreign Language].

[Interpreted] For the second question, in the fourth quarter, we enhanced our brand presence in Singapore and Southeast Asia market by rolling out more online advertising. They have seen an increase in organic traffic and mark-to-market referrals and led to a high number of new banking accounts in the fourth quarter. However, we've seen the users from different acquisition approaches may vary in quality. So moving forward, we will dynamically adjust our customer execution strategies based on their effectiveness to ensure the healthy ARPU and profit model. Thank you, Judy.

Operator, please move on to the next question.

[Operator]

Our next question comes from the line of Han Pu from CICC.

[Han Pu, analyst]

[Foreign Language].

This is Han Pu, CICC. I have 2 quick questions. Firstly, could you please share the original breakdown of the really founded accounts in Q4? And secondly, could you please give us more color on the Hong Kong business operation, especially for the crypto trading business?

[Tianhua Wu, executive]

[Foreign Language].

[Interpreted] Okay. Among the new funded accounts in the fourth quarter, about 60% came from Singapore and Southeast Asia, nearly 20% came from the United States, the contribution from Hong Kong and Australia and New Zealand region accounted for around 10% each.

[John Zeng, executive]

[Foreign Language].

We have entered Hong Kong retail market for 1 year. And so far, we are relatively satisfied with our progress. So to explain such a competitive market in Hong Kong, we offer 1 of the most friendly pricing to our users.

Until now, Hong Kong users can still enjoy 0 commission and 0 plant fees, when they are trading [indiscernible] securities on Tiger platform. Also, we have been optimizing our product offering over the past year, and we are quite satisfied with the level of improvement in our current product features.

In the fourth quarter, we launched the U.S. bonds and the trading spark features in Hong Kong. In the first quarter of this year, we updated the Type 1 license with asset fee allowing professional investors to -- allowing PI users to trade crypto on the Tiger Hang platform. We expect this feature to go live in the next 1 or 2 months.

Our local business is gradually expanding, and the user quality also improved from time to time. In the early stages of already in Hong Kong, we will -- the market and understanding our local users which may took some time. In the fourth quarter, we implemented a more localized customer acquisition strategy. As a result, the net asset inflow in the Hong Kong market exceeding the total for the first 3 quarters of this year.

Additionally, the average debt asset inflow from newly acquired clients in the fourth quarter exceeded USD 5,000, indicating a good user quality in the Hong Kong market and a big growth opportunity for us to explore in the future.

[Aron Lee, executive]

Thanks. Let's move on.

[Operator]

There are no further questions at this time. So I'll hand the call back to Aron for closing remarks.

[Aron Lee, executive]

Thank you. I would like to thank everyone for joining our call today. I'm now closing the call on behalf of the management team here at Tiger. We do appreciate your participation in this call. If you have any further questions, please reach out to our Investor Relations team. This concludes the call, and thank you very much for your time. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.