Futu 1Q25 (Minutes): Core Segments Show Growth Potential for Next Quarter (Excl. Options)
Dolphin Research compiled the business data of $Futu(FUTU.US), which can be viewed in the Longbridge app under Stocks — Overview — Performance Composition. Below are the minutes of Futu's Q1 earnings call:
1. Key Financial Highlights
1. $FUTU-W(03588.HK) Revenue Performance
(1) Brokerage Commission & Handling Fee Income: HKD 2.30 billion, up 113% YoY and 12% QoQ.
YoY growth drivers: Increased trading volume, partially offset by lower commission rates (due to product mix changes and larger average order size in Hong Kong stocks).
(2) Interest Income: HKD 2.10 billion, up 53% YoY and 2% QoQ.
Growth sources: Margin financing, margin interest, and bank deposit yields.
(3) Other Income: HKD 314 million, up 101% YoY but down 11% QoQ, mainly due to fluctuations in fund distribution and forex exchange income.
2、Costs & Profit Margins
2.1 Total Costs: HKD 749 million, up 59% YoY (vs. HKD 471 million in prior-year period).
a) Brokerage Commission-Related Expenses: HKD 144 million, up 138% YoY and 28% QoQ, largely aligned with revenue growth.
b) Interest Expenses: HKD 469 million, up 50% YoY (driven by higher interest expenses from securities lending and margin financing), but down 9% QoQ (due to reduced margin financing interest expenses and lower costs from securities lending/lending businesses).
c) Processing & Service Costs: HKD 136 million, up 44% YoY (increased market data fees) but down 10% QoQ (optimized system usage and market data fees).
2.2 Gross Profit: HKD 3.90 billion, up 86% YoY; Gross Margin expanded to 84% (vs. 81.9% YoY).
2.3 Operating Expenses: HKD 1.30 billion, up 36% YoY but down 12% QoQ.
a) R&D Expenses: HKD 386 million, up 15% YoY (AI investments) but down 3% QoQ (staff optimization).
b) Sales & Marketing Expenses: HKD 459 million, up 57% YoY (customer acquisition growth) but down 1% QoQ (lower customer acquisition costs).
c) Admin Expenses: HKD 415 million, up 38% YoY (support for overseas market development) but down 28% QoQ (reduced bonus accruals).
3、Profitability
(1) Operating Profit: HKD 2.70 billion, up 125% YoY and 21% QoQ; Operating Margin rose to 57.2% (vs. 46% YoY).
(2) Net Profit: HKD 2.10 billion, up 107% YoY and 15% QoQ; Net Margin reached 45.6% (vs. 39.9% YoY).
(3) Effective Tax Rate: 18.6%.
2. Earnings Call Details
2.1 Management Highlights
1. Client Growth & Market Expansion: Net new funded accounts: +262k in Q1 (up 48% YoY, 22% QoQ). Total funded accounts reached 2.70 million (up 42% YoY, 11% QoQ). Progress toward 2025 net new funded account target of 800k remains strong.
(1) Hong Kong: Top contributor for two consecutive quarters, driven by China-concept stock revaluation + active Hong Kong IPO market. Brand recognition + user experience + strong execution are key to higher resilience in bull markets.
(2) U.S.: Growth driven by platform upgrades + New York marketing campaign "Take Charge of Your Trading."
(3) Malaysia: Fastest-growing among seven emerging markets, with effective localized marketing and IPO subscription tools.
(4) Japan: Funded accounts hit record high.
2. Product Innovation & Upgrades
(1) Futubull AI: AI-powered advisory tool with 90% user satisfaction; global rollout planned for Q2.
(2) Desktop Platform: Supports Windows, macOS, and Linux; added quantitative strategy tools and multi-leg options functionality.
(3) Fractional Shares & U.S. Options: Launched fractional shares in Japan; U.S. options trading went live in April.
3. Client Assets & Trading Activity
3.1 Total Client Assets: Reached HKD 830 billion (up 60% YoY, 12% QoQ), primarily driven by net client capital inflows.
a) Hong Kong: Inflows driven by tech stock rebound; Singapore: AUM up 11% QoQ (11 consecutive quarters of double-digit growth) due to inflows into U.S. stocks and wealth management products; Canada & Australia: Average AUM per client rose for five consecutive quarters.
b) Margin Financing Balance: HKD 50.3 billion, stable quarter-end despite March deleveraging and market correction.
3.2 Total Trading Volume: HKD 3.22 trillion (up 140% YoY, 11% QoQ).
a) U.S. Stocks: HKD 2.25 trillion (up 8% QoQ), with active bottom-fishing in semiconductors and tech stocks.
b) Hong Kong Stocks: HKD 916 billion (up 21% QoQ), boosted by improved sentiment from DeepSeek.
c) U.S. Options: Double-digit QoQ growth in contracts traded and active traders; contract volume hit record high.
4. Wealth Management & IPO Services
4.1 Wealth Management AUM: HKD 139.2 billion, up 118% YoY and 26% QoQ. Penetration rate among funded clients: 29%.
Product mix: Money market funds dominate (safe-haven demand); rising demand for bond funds and structured notes (especially in Singapore).
(2) IPO Distribution: Served 498 companies (up 16% YoY). Participated in major Hong Kong IPOs (e.g., Blok Group, Guming Holdings) and ranked #1 in subscription amount and participants for Mixue Ice Cream IPO (70k clients subscribed >HKD 1 trillion).
5. Future Strategic Focus
(1) Market Share Expansion: Deepen product localization and brand investment.
(2) AI Globalization: Roll out Futubull AI internationally.
(3) Product Diversification: Launch FX-linked structured products (HK/SG), equity funds (Malaysia), and USD money market funds (Japan).
2.2 Analyst Q&A
Q: Since Q2 began, amidst significant market volatility in Hong Kong and US stocks during April and May, how have the platform's trading velocity, trading volume, and margin financing balances performed?
A: New account openings in Q2 may see a double-digit sequential decline, primarily due to the high base in Q1. However, the overall customer acquisition momentum remains strong, and we are confident in achieving the guidance of adding 800,000 new paying customers by 2025.
Despite the significant market volatility, client trading activity remains very robust. Based on current trends, we expect total trading volume to show further sequential growth.
To date, clients have allocated substantial assets to the platform. Following this trend, net asset inflows are expected to remain at a high level, comparable to Q1.
Coupled with the positive mark-to-market impact from the market rebound since late April, total client assets are projected to increase further sequentially.
Q: What is the business model of the membership program recently launched by Futu? How many paying customers have subscribed to these services, and what are the long-term benefits of this program for Futu?
A: The membership program primarily targets wealth management product clients, especially those with large asset sizes, high trading velocity, or specific risk appetites for alternative wealth management products. Clients are segmented based on their risk preferences, assets, and product needs. As the program was just launched, the penetration rate and absolute number of membership clients within the total client base are still very small.
Q: What is the timeline for Futu's cryptocurrency trading business, and how will the passage of stablecoin-related regulations in Hong Kong impact the company?
A: Since Q1, the correction in cryptocurrency prices has dampened enthusiasm among crypto investors on the platform. However, monthly trading volume and the number of active traders remain at high levels. Since May, prices have rebounded, investor interest has recovered, and daily trading volume has also rebounded.
The company continues to build cryptocurrency-related product capabilities. We recently launched a cryptocurrency deposit function in Hong Kong with good feedback and plan to introduce cryptocurrency withdrawal functionality soon.
a. Launched a cryptocurrency simulated trading function in Hong Kong, making us the first regulated crypto platform to allow simulated trading.
b. Launched gray-level cryptocurrency trading in most US states a few days ago. Currently supporting trading in over 30 mainstream cryptocurrencies, with plans to increase the variety soon.
Long-term, the company is optimistic about the virtual asset class. Cryptocurrency trading fees are higher than cash stock trading. As the regulatory environment and guidelines become clearer, more cryptocurrencies and functionalities will be permitted, providing Futu with more avenues to profit from this asset class. Cryptocurrencies hold significant potential in terms of both Assets Under Management (AUM) and revenue. Aerostar Bank, in which Futu has invested, is participating in the stablecoin sandbox project and exploring stablecoin custody methods.
Q: Does Futu Securities disclose client information and data to third parties? Following recent concerns about the taxation of overseas investment income for Mainland China clients, how have client retention rates and AUM performed?
A: Like all licensed brokers in Hong Kong, Futu Securities will not disclose client information or data to any third party without an explicit request from the SFC and in compliance with relevant Hong Kong laws and regulations. Online rumors about Futu disclosing client data and trading information to third parties are unfounded. We have not observed significant outflows of client assets due to this issue.
Q: The recent significant drop in HIBOR – what impact does this have on the company's net interest income? Have there been any changes in client behavior?
A: During the last earnings call, we provided a sensitivity analysis: assuming a 25-bps rate cut, the company's pre-tax monthly profit would decrease by approximately HKD 8-10 million. However, despite the 50-bps Fed rate cut since last year, overall interest income in Q1 still grew sequentially. This was largely because the scale of clients' average idle cash balances offset the impact of the rate cuts.
Simultaneously, the recent drop in HIBOR may encourage more clients to trade, from which the company will benefit through trading commissions. Furthermore, the significant HIBOR decline might be influenced by certain large IPOs in Hong Kong, potentially a temporary phenomenon. Whether it can sustain at low levels remains to be seen. Currently, we have not observed significant changes in client behavior.
Q: Client asset inflows hit a record high this quarter. What is the composition of inflows across different regions, especially the contribution from non-Greater China regions? What is the outlook for the full year?
A: In Q1, the company saw strong asset inflow momentum across 7 different markets. Group-wide asset inflows grew over 50% sequentially, setting a record for a single quarter. Geographically, Hong Kong and Singapore remain the primary contributors to asset inflows. We hold a positive and optimistic outlook for asset inflows throughout the full year.
Q: Are there any quantitative metrics to measure the adoption rate, user engagement/satisfaction, and client stickiness of the AI tools launched by the company? What more can be done in this area?
A: Futu NiuNiu's AI features have been available for about two months, and we are still analyzing more data. Preliminary data indicates positive user feedback, which has also driven increased engagement and activity on the platform. The company has bundled AI features into the membership program. The number of free questions users can ask the AI depends on their membership tier, which is based on client assets and trading behavior on the platform. This implies that the AI features help drive asset inflows and boost trading activity. Based on initial feedback from Hong Kong clients, we are exploring expanding the AI features to more international markets.
Q: What caused the significant decrease in customer acquisition cost (CAC) this quarter? Are there any new future guidance points?
A: The average CAC in Q1 was approximately HKD 1,800, lower than the target set at the beginning of the year. This was partly due to the bull market conditions, including the revaluation of Chinese assets, an active Hong Kong IPO market, and volatility in the US market. During these trading windows, the marketing team capitalized on opportunities, and brand influence also contributed to effective customer acquisition.
Going forward, the company will prioritize customer growth while further emphasizing brand-building investments. Prudently, we maintain the full-year CAC guidance but will reassess this assumption in the coming quarters.
Q: The company announced its entry into the New Zealand market. Can you share some insights about this market?
A: Nimble is the second-largest broker in Australia, and we have accumulated significant brand equity there. Entering New Zealand is a natural extension. Australian and US stocks are the two most popular asset classes among New Zealand investors, and we have already built strong product capabilities for these in Australia.
Expanding into New Zealand will not require significant incremental investment in licensing, personnel, or R&D. We can largely replicate the IT infrastructure, marketing resources, and brand assets established in Australia. Incremental costs are controllable, and the New Zealand business is expected to deliver a good return on investment (ROI).
Q: The effective tax rate rose to 18% in Q1. What were the reasons behind this, and what is the expected medium-to-long-term effective tax rate level for Futu?
A: The effective tax rate in Q1 was approximately 18.6%. Reasons include: 1) As more overseas markets become profitable, historical accumulated tax credits have been fully utilized, thereby increasing the group's overall effective tax rate; 2) The implementation of OECD Pillar 2 in different markets (OECD Pillar 2 is a core element of international tax reform, aiming to ensure large multinational enterprises with annual revenues exceeding EUR 750 million pay a minimum effective tax rate of 15%, regardless of where they operate globally. Its core mechanism, the Global Anti-Base Erosion (GloBE) rules, allows the parent company's jurisdiction to impose top-up taxes on profits of subsidiaries in low-tax jurisdictions, preventing profit shifting for tax avoidance.) will also impact the company's overall effective tax rate. We expect the overall effective tax rate to remain around 17%-18% in the next few quarters.
Q: The blended commission rate was stable and slightly increased in Q1. What were the reasons behind this, and what is the future trend?
A: The blended commission rate increased slightly sequentially, mainly due to a shift in the product mix towards certain derivatives like US options. Looking ahead, with the launch of more new products, such as cryptocurrency trading, we expect the blended commission rate to remain stable.
Q: Futu previously set a Hong Kong market share target of approximately 40%, implying around 1 million paying clients. Based on Q1 data, paying clients are nearing 900,000. At this acquisition pace, the 40% market share target could be achieved in the coming quarters. Against this backdrop, what is management's latest view on the Hong Kong market? Considering recent changes in the competitive landscape, if the 40% share is breached, how much further room is there to increase Hong Kong market share?
A: The absolute client number applies to the Greater China business, while the 40% market share target is specific to the Hong Kong local business; they are not directly comparable. Over the past two quarters, Hong Kong contributed the highest number of new paying clients among the seven markets. As a leading broker in Hong Kong, we are confident in benefiting significantly from favorable market conditions. There remains substantial growth potential for the Hong Kong business in terms of both client numbers and client assets.
Competition in Hong Kong has always existed, with numerous peers entering over the past few years. However, Futu continuously innovates and iterates its products. Our product capabilities create strong barriers to entry. We build customized product experiences and innovative features for each market we enter. Combined with an excellent user experience and competitive pricing, we consistently win user mindshare and capture market share.
Brand is one of the most important intangible assets for a financial services platform. Futu has established a significant degree of trust with clients, and platform stickiness remains consistently high at 98%-99%. If new entrants cannot offer a highly differentiated product experience and service, it is difficult to influence client choices. As brand building progresses, the number of high-net-worth clients in Hong Kong has increased, driving substantial sequential net asset inflows.
Q: Idle cash balances grew significantly in Q1. Can you break down the interest income? Specifically, how much came from idle cash versus margin financing, lending, etc.?
A: Income related to idle cash accounted for approximately 35%-40% of total interest income this quarter. The strong growth in idle cash income stems from two factors: 1) Significant net asset inflows from existing clients and the acquisition of many new clients in Q4; 2) Benefiting from Q4's market volatility, where many clients increased cash positions and reduced stock holdings.
Q: What is Futu's AI product strategy and investment scale?
A: Futu has established its own AI team, closely monitoring industry developments and innovation trends. AI is applied at Futu in two ways:
- Internally: To enhance operational efficiency, already deployed in scenarios including customer service, account opening, and document verification, improving operational efficiency.
- Externally: To develop new products and features for clients. For active traders, a key benefit of AI is lowering the investment barrier, helping them gather information more efficiently to make informed decisions. For example, we will soon launch algorithmic training features. Previously, algorithmic training was almost exclusively for sophisticated institutional investors. Now, retail clients can simply tell the AI the stocks they are interested in, the pairs they want to monitor, and the conditions, and the AI can generate algorithmic trading strategies for them. We will continue innovating towards this goal, launching more AI-driven features. (Note: The text did not mention investment scale).
Q: How is the development of Futu's Virtual Asset Trading Platform (VATP) license business progressing?
A: There was no new progress on the VATP license business in Q1. Futu, along with other institutions, obtained interim approval for the VATP license from Hong Kong authorities during the second phase of the process. However, significant verification work still needs to be conducted by third-party independent consultants, and many procedures require final approval. We will provide timely updates on any subsequent developments.
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Disclosures: Dolphin Research Disclaimer
