$FUTU - Futu Holdings
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$FUTU - Futu Holdings
Websites:
https://www.futunn.com/?lang=en-US
Current stock price: $42.50
Current market cap: $5.9 billion
# of employees: 500+
Offices in Hong Kong and Silicon Valley, California
2019 revenues: $137 million
2020 revenues via Tikr (est): $376 million
2020 revenues via YahooFinance (est): $370 million
2021 revenues via Tikr (est): $509 million
2021 revenues via YahooFinance (est): $560 million
2020 Q1 financial results [click here]
2020 Q2 financial results [click here]
2020 Q3 financial results [click here]
$FUTU’s F-1 from their March 2019 IPO [click here]
Before we get started with the write-up, given that $FUTU is based in Hong Kong which might make some investors nervous, I wanted to mention they do use PriceWaterhouseCoopers as their auditing firm and Skadden, Arps, Slate, Meagher & Flom as their legal counsel. These are both very reputable firms.
OVERVIEW:
Futu Holdings was founded in 2012 by Leaf Hua Li and came public in March 2019 under the ticker symbol $FUTU. Mr. Li was employee #18 at Tencent back in 2000 and launched Tencent Video so this guy certainly has the right pedigree. Tencent is now a $700 billion company.
As a private company $FUTU raised $285 million across 4 rounds from world class investors such as Tencent, General Atlantic, Matrix and Sequoia.
$FUTU is a FinTech company creating a better investing experience by offering a digital-first investment and wealth management platform. Technology permeates every part of $FUTU’s different business units to offer a superior user experience built on an agile, scalable and secure platform. $FUTU primarily serves the emerging affluent Chinese population, pursuing a massive opportunity to build a digital gateway into broader financial services.
$FUTU launched the business on the premise that no one should be precluded from investing on the basis of prohibitive transaction costs or market inexperience.
$FUTU designed a platform around an elegant user experience integrating timely market data, social collaboration and best-in-class trade execution. They believed by delivering the $FUTU vision through a purpose-built technology infrastructure it could disrupt traditional investing platforms. This is why many people, including myself like to call $FUTU the Robinhood of China. Not only is it accurate but the success of Robinhood in the US has given $FUTU the perfect playbook to scale throughout Asia.
Over the last eight years $FUTU has continuously enhanced its technology capabilities and built a comprehensive, cloud-based platform that is fully-licensed to conduct investment securities business in Hong Kong. The Hong Kong and United States markets are the two most popular markets for China-based investors investing overseas. This is another reason why $FUTU has an office in California so they can appease US regulators but also appeal to the millions of Asian-Americans currently living in the US.
You can read more about the Hong Kong exchange [click here]. It currently has 2,300+ listed companies and is the third largest exchange in Asia behind the Tokyo Stock Exchange and Shanghai Stock Exchange.
This might be a little hard to read but you can see all the different entities under $FUTU Holdings which is typical for a diversified investment, trading, wealth management platform. The only ones that I’m really going to talk about here are their two main investment products/apps which are Futubull and MooMoo.
$FUTU operates multiple platforms, starting with Futubull, a highly integrated application accessible through any mobile device, tablet or desktop. $FUTU’s primary fee-generating services include trade execution and margin financing which allow its clients to trade securities, such as stocks, warrants, options and exchange-traded funds, or ETFs, across different markets. $FUTU surrounds its trading and margin financing services and enhances its user and client experience with market data and news, research, as well as powerful analytical tools, providing clients with a data rich foundation to simplify the investing decision-making process. [click here for more info on their services]
$FUTU currently offers a variety of money market, fixed income and equity products from leading Chinese and global fund houses on its platform, catering to different investment targets and risk preferences of its clients. Last year $FUTU launched a mutual fund distribution platform to provide even more investment options to their growing user base. I suspect $FUTU will continue to expand their platform which includes providing more access to US based investment products.
As many of you know, the newer and fast growing US based investment platforms like Robinhood, WeBull, Public, CommonStock, and others are making a big deal about the importance of community and social when it comes to investing.
$FUTU clearly agrees with this approach given the creation of their Futu NiuNiu Community. This community feature allows users to connect and share with other members of the community in hopes of keeping everyone more engaged on the platform.
In contrast to traditional investing platforms and other online brokers, $FUTU has embedded social media tools to create a network centered around its users and provide connectivity to users, investors, companies, analysts, media and key opinion leaders.
The community and social sharing aspects encourage the flow of information. For instance, users can exchange market views, watch live broadcasts of investment related events and participate in educational courses offered through the NiuNiu Classroom. Both the community and the classroom provide $FUTU with very valuable data and additional monetization opportunities down the road.
As you can see below, $FUTU makes their products available on every major desktop and mobile operating system.
Since the very beginning, $FUTU has always appealed to the younger, more educated investors, with the average $FUTU user being just 36 years old and typically middle-class or above.
Approximately 40% of $FUTU users work within the technology or financial services industry. $FUTU clients are very loyal with a 98% retention rate. $FUTU has been growing their user base mainly through online and offline marketing however word-of-mouth referrals have probably been their most successful source for customer acquisition.
$FUTU has seen significant user growth over the past three years:
End of 2017 = 80,057 paying customers
End of 2018 = 132,821 paying customers
End of 2019 = 198,382 paying customers
End of 2020 Q2 = 303,102 paying customers
$FUTU’s strong growth can be attributed to its unique competitive strengths such as the superior investing experience it provides through its fully digitalized brokerage and wealth management platform, which have enabled the company to rapidly and continually expand its client base and have fueled the strong momentum of its business.
FINANCIALS:
Bottom line, the financials look incredible which is one of the main reasons I’m so bullish on this stock. Revenues in 2020 skyrocketed 175% as new customers flocked to $FUTU’s different platforms in hopes of taking advantage of the booming global stock markets. Based on multiple financial data sites, overall consensus for revenues in 2021 is around $560 million. Assuming that $FUTU finishes 2020 around $375 million, this would be a 49% increase in revenues.
Clearly their 2020 growth rates were not sustainable however 49% is nothing to overlook, especially when you digest the rest of their financials and see 76% gross margins (which could hit 78-80% in 2021) and 38.5% net income margins (on the way to 40%).
In my experience it’s difficult to find more than a few company’s every year growing this fast with these kinds of margins not to mention $FUTU is already profitable. Margins this strong give any company a tremendous amount of options to accelerate growth without needing to saddle the balance sheet with debt or issue new shares to raise capital thereby diluting existing shareholders. By all measures $FUTU appears to be in a very strong financial position.
While many growth investors are paying 26x sales for 45-50% revenue growth, in the case of $FUTU you only have to pay 26x earnings for 45-50% revenue growth. In terms of P/S multiple, $FUTU is trading at less than 11x 2021 sales with sustainable growth and tremendous margins. For comparison, Interactive Brokers ($IBKR) is trading at 13x sales with less than 10% revenue growth.
I’m still in shock that $FUTU is trading in the mid $40s right now and not in the mid $70s or $80s. Considering the current economic climate, the vast amounts of stimulus that has been pumped into the global financial system and interest rates near zero, it would be extremely reasonable to see a stock like $FUTU trading at a PEG ratio of 1.5 or higher.
Doing some quick math...49% growth for 2021 x 1.5 PEG ratio x $1.60 per share in earnings for 2021 and it’s conceivable that $FUTU could be a $100+ stock in the next 12 months. This is why $FUTU is currently one of my three largest positions. [click here to see my entire portfolio, updated daily]
TECHNICALS:
Looking at the chart below, you can see $FUTU recently pulled back from the low $50s, had a couple of false breakouts and then came all the way back down to the 50 day moving averages, where it held earlier this week then bounced 8% higher yesterday. From a technical standpoint this was a critical support level and now it appears this could be the beginning of a nice rally higher.
I started adding $FUTU to my portfolio a few weeks ago when I thought it might bounce off the 20 day moving averages but unfortunately it pulled all the way back to the 50d sma and 50d ema. I’ve been adding this stock quite aggressively for the past couple weeks, not only because I thought the technicals were setting up nicely but because I love the fundamentals and investment thesis too.
CONCLUSION:
$FUTU is one of my favorite stocks for 2021 for all of the reasons I outlined above. I’ll admit that this was a shorter write-up for me because I wanted to make sure all of my subscribers knew about this stock before year end. Unfortunately over the past two days the stock is up 20% after bouncing off the 50 day moving average but I still believe there’s still plenty of upside left.
Hopefully many of you have been following me on Twitter or Stocktwits for the past few weeks so you’ve seen how bullish I have been on $FUTU and therefore got into this stock below $40 rather than chasing it at $43-$47 where it’s been trading this morning. Like I mentioned earlier, I think this stock could hit $100+ in 2021 assuming growth stays strong, margins stay where they are and the company continues growing the user base. Between FutuBull and MooMoo, $FUTU is well positioned to take advantage of this new hoard of retail investors throughout Asia.
There’s no reason why $FUTU can’t be trading at 60-75x earnings in the next 6-12 months given their 50% revenue growth, 76% gross margins and 38% net income margins.
I also believe we’re going to get the Robinhood IPO in 2021 and once we see the insane valuation and P/S multiple on Robinhood, it’s going to make $FUTU look very cheap and undervalued which could get the stock soaring higher.
Given the recent run up in $FUTU’s stock price over the past couple days I would suggest using caution if you decide to get into this stock. I certainly can’t predict where the stock goes over the next few days, we could get a 5-10% pullback or we could see it go 5-10% higher. Just know that I’m fully invested in $FUTU with a 7.5% allocation in my portfolio so I remain extremely bullish on this stock going into the new year. I have no intention of trimming my position anytime soon.
With that said, I’d like to wish everyone a Happy New Year and I promise to do my best to bring you more growth stock ideas in 2021.
I hope you enjoyed this write-up. My goal is to provide two in-depth newsletter per week of stocks that I find interesting and poised to deliver strong returns for shareholders over the next 6-12 months.
Best regards,
Jonah Lupton
Disclaimer: The stocks mentioned in my newsletters are not intended to be a list of buy recommendations but rather some ideas for your watchlist. Perhaps they end up in your own portfolio after you conduct your own research and due diligence. Some of the stocks mentioned in my newsletters have smaller market capitalizations and therefore can be more volatile. I always encourage everyone to do their own research and due diligence before buying any stocks mentioned in my newsletters. Please manage your portfolio and position sizing in accordance with your own risk tolerance and investment objectives.