Futu's Stock Grew Fivefold in 2020 as Its Business Model Became Clearer

Financials Author: Skye Lan Editor: Luke Sheehan Oct 07, 2020 08:39 PM (GMT+8)

The stock price dropped 22% in one day in March but climbed back to a historical high point. 

Image credit: EqualOcean

Futu Securities (FUTU:NYSE), a Tencent-backed Chinese online brokerage and securities company, has seen its stock price surge from USD 8 to its record high since its IPO of over USD 40 in August, now trading at around USD 30 and remaining stable. 

In March 18, right after the company released its encouraging financial performance for 2019, the stock price slumped 21.7% in one trading day. This was caused by the huge mistake Futu made in its investor relationship management. Without any press or notice, Futu increased its stock shares outstanding by 10%. Furthermore, just before the annual report was released, Futu ‘secretly’ reported to SEC that the net income for 1Q 2019 had cut by 49% – they did so without notifying the investors, and there were no clues in the semiannual report, which was suspected as an attempt to whitewash the results. 

However, since the downturn, investors have been showing their confidence in the company’s future thanks to its clearer business model. Futu posted 225.8% and 310% growths on net income during the first and second quarter of 2020, indicating that the company is accelerating developing. Especially compared with its largest competitor, Tiger Brokers (TIGR:NASDAQ) that fell on debut price at around USD 4, the company is doing well. Currently, it has its revenue driven by the to-C business that provides brokerage services in Hong Kong and the US and is actively expanding to-B business, which focuses on the Employee Stock Ownership Plan (ESOP) and IPO distribution that has taken up over 10% of its total sales. It believes that to-B business fuels the company with sustainable growth. The ESOP project that Futu developed for Tencent brought reputation and experiences, and helped the company receive orders from 104 companies, including Xpeng (XPEV:NYSE) and Beike (BEKE:NYSE). As for IPO distribution, Futu has provided services to 64 companies, including Meituan Dianping (03690:HK) and Xiaomi (01810:HK).