UP Fintech: A Good Quarter And A Positive Outlook (TIGR)

Elevator Pitch

UP Fintech Holding Limited (NASDAQ:TIGR) is assigned a Buy rating.

My prior November 27, 2023, update analyzed UP Fintech’s Q3 2023 financial results. This latest article touches on TIGR’s most recent financial disclosures for the first quarter of this year and its prospects for the full year.

UP Fintech’s Q1 2024 top line and bottom line came in above the sell-side analysts’ expectations. Looking ahead, TIGR’s FY 2024 outlook is favorable, as the company achieved a significant number (63,800) of new funded account additions in the first five months of this year. The good first quarter performance and the positive prospects for full-year 2024 support an upgrade of my rating for TIGR from a Hold to a Buy.

UP Fintech’s Revenue And Earnings Grew Strongly In Q1

TIGR revealed the company’s Q1 2024 financial performance with a press release issued on June 5, 2024, before the market opened. UP Fintech delivered a good set of results for the latest quarter.

The company’s top line increased from $66.3 million for the first quarter of 2023 to $78.9 million in Q1 2024. This means that UP Fintech’s revenue growth accelerated from +10% YoY in Q4 2023 to +19% YoY for the most recent quarter. Separately, TIGR’s non-GAAP adjusted net profit grew by +42% YoY to $14.7 million in the first quarter of the current year. In contrast, the company’s bottom line fell by -77% YoY for the final quarter of the previous year.

UP Fintech’s latest quarterly financial results also beat the market’s expectations, as TIGR’s Q1 top line and bottom line both accounted for more than a quarter of the market’s consensus full-year forecasts. Specifically, the company’s first quarter revenue and normalized net income represented 27% and 29% of the analysts’ prior consensus FY 2024 estimates, respectively, as per S&P Capital IQ data.

At the company’s Q1 2024 analyst briefing, TIGR shared that it observed “market sentiment improving this quarter versus last quarter” and drew attention to “a recovery in market activity in both the US and Hong Kong market.” This helps to explain why UP Fintech’s most recent quarterly revenue growth was strong and ahead of the sell-side’s expectations.

On the other hand, UP Fintech’s overall profitability benefited from lower clearing fees and customer acquisition costs. UP Fintech’s clearing fee as a proportion of commission income and its acquisition cost per client were 8% and $150 in Q1 2024, which it referred to as “industry-leading low levels” in its results briefing.

In an earlier March 27, 2024, announcement, TIGR noted that it had “achieved fully self-clearing” for “Hong Kong cash equities” and this reduces its “clearing expense.” The company mentioned at its first quarter earnings call that the “clearing cost for Tiger’s (UP Fintech’s brand) Hong Kong trading” was high in the past because it previously cleared “Hong Kong equities through other brokers.”

Also, UP Fintech’s client acquisition cost was reduced, as it “adjusted our acquisition channels and terminated partnership with some vendors that did not meet our ROI (Return On Investment)” goal as per TIGR’s earnings briefing comments.

UP Fintech’s share price rose by +4.2% at the end of the June 5 trading day, so it is safe to say that the market was satisfied with TIGR’s latest quarterly financial performance.

TIGR’s Full-Year Prospects Are Favorable Considering New Funded Accounts Metric

The FY 2024 outlook for UP Fintech is positive, taking into account the growth in the company’s new funded accounts.

TIGR’s new funded account additions amounted to 123,110 in 2023, and the company’s goal is to achieve 150,000 new funded accounts for the new fiscal year.

UP Fintech disclosed in its recent quarterly earnings release that its total funded accounts grew by +15% YoY to 933,400 as of March 31, 2024. This implies that the company recorded 28,800 new funded account additions in the first quarter of this year.

At its Q1 2024 analyst call, TIGR revealed that it added around 35,000 new funded accounts in April and May. This brings UP Fintech’s cumulative new funded account additions to 63,800 for the first five months of 2024, which translates into an annualized new funded account metric of 153,120.

In other words, UP Fintech is in a good position to meet its full-year 150,000 new funded accounts target, judging by its actual performance in the first five months of the year. Assuming that TIGR achieves its FY 2024 new funded account additions goal, the company is expected to witness a healthy +17% growth in total funded accounts this year.

Also, there is room for the company to improve its profitability with respect to clearing expenses. TIGR guided at the Q1 2024 earnings briefing that the company’s “clearing fee will go down further” as its “Hong Kong trading volume gradually increases.” As a reference, the clearing fee as a proportion of commission income for UP Fintech was 20% for Q1 2024, which could decrease and come closer to the company average of 8% in time to come.

As such, the market’s current consensus FY 2024 normalized EPS growth rate forecast of +16.2% (source: S&P Capital IQ) appears to be pretty realistic and achievable.

Stock’s Valuations Are Enticing

UP Fintech is now trading at 13 times consensus forward FY 2024 normalized P/E as per S&P Capital IQ valuation data. The stock’s valuations are attractive relative to peers and its expected future earnings growth rate.

TIGR’s peers are valued by the market at more demanding P/E multiples. As a comparison, the consensus next twelve months’ normalized P/E ratios for Futu Holdings (FUTU), Interactive Brokers (IBKR), and Charles Schwab (SCHW) are 16 times, 19 times, and 21 times (source: S&P Capital IQ), respectively.

Also, the consensus FY 2023-2025 normalized EPS CAGR estimate for UP Fintech is +15% based on S&P Capital IQ data. A stock is usually deemed to be undervalued if its earnings multiple (13 times) is lower than its earnings growth rate (+15%), which is the case with TIGR.

Variant View

TIGR’s shares might do poorly if certain risk factors materialize.

One major risk is a weakening of investor sentiment in key markets like the US and Hong Kong, which will lead to lower-than-expected commission income for UP Fintech.

The other major risk is that the company’s growth in new funded accounts slows in the coming quarters due to tougher competition or customer dissatisfaction.

Closing Thoughts

A good set of results for Q1 2024 and favorable prospects for the full year have prompted me to turn bullish on UP Fintech. Furthermore, the company’s shares are inexpensive. As such, I have decided to rate TIGR as a Buy.