Elevator Pitch
I have a Hold investment rating for UP Fintech Holding Limited (NASDAQ:TIGR) stock.
Earlier, I evaluated TIGR’s strong share price performance and positive valuation re-rating in my previous article written on September 12, 2023. I focus on reviewing UP Fintech’s recent third quarter financial and operating performance in the current update. TIGR’s stock price has decreased by -7.1% (source: Seeking Alpha price data) and its shares have underperformed the S&P 500 by -925 basis points as of November 24, 2023, since I downgraded my rating for UP Fintech to a Sell with my September 2023 write-up.
With the current write-up, I have chosen to raise my investment rating for TIGR from a Sell to a Hold after considering the company’s above-expectations headline revenue and earnings in the latest quarter. On the other hand, UP Fintech’s key operating metrics for Q3 2023 weren’t as good as what the company achieved in Q2 2023. Therefore, I take the view that it is premature to rate TIGR as a Buy now, especially since the company’s share price outperformance so far this year has priced in much of the positives relating to its Q3 results beat.
Top Line Beat Was Driven By Increase In Interest Income And Underwriting Revenue
Prior to UP Fintech’s Q3 2023 results announcement on Monday, November 27, 2023, before trading hours, the sell side forecasted that TIGR’s revenue would decrease by -20.3% YoY from $55.4 million in Q3 2022 to $44.2 million (source: S&P Capital IQ) for the latest quarter. As a comparison, UP Fintech’s top line expanded by +26.0% YoY and +23.5% YoY in the first and second quarters of this year, respectively.
But TIGR’s actual total revenue or top line rose by +26.6% YoY to $70.1 million in Q3 2023, which beat the consensus estimate of $44.2 million by +58.6%. An increase in interest income and IPO-related revenue helped to more than offset the decline in commissions.
Interest income for UP Fintech jumped by +54.4% YoY to $38.3 million in the third quarter of the current year thanks to the rising rate environment. TIGR also witnessed a +35.1% YoY growth in other revenue to $5.4 million over the same time period. In the company’s Q3 2023 earnings press release, UP Fintech mentioned that it “underwrote a total of four U.S. and Hong Kong IPOs” in the latest quarter that boosted its other revenue.
On the flip side, revenue derived from commissions contracted by -5.4% YoY to $23.2 million for TIGR in Q3 2023. This implies that it is likely that investor interest is still weak, and investors still aren’t trading as actively as they did a year ago. Specifically, UP Fintech’s trading volume for equities executed on its platform decreased by 5.8% YoY in the recent quarter.
Bottom Line Was Boosted By Operating Leverage And Marketing Cost Savings
There are no consensus quarterly net profit or EPS estimates for TIGR. For the full-year fiscal 2023, the market expected TIGR to report normalized net income and EPS of $37.9 million and $0.249, respectively before the company revealed its Q3 2023 performance.
UP Fintech reported an actual normalized net profit and EPS of $16.0 million and $0.10, respectively for Q3 2023. This translates into a non-GAAP adjusted net income of $41.6 million and a normalized EPS of $0.263 for TIGR in the first nine months of this year. In other words, UP Fintech’s actual 9M 2023 bottom line had already exceeded the market’s full-year consensus projections. It is apparent that TIGR’s Q3 earnings have also surpassed the sell-side analysts’ expectations based on the comparison of its 9M actuals and the full-year consensus prediction.
Apart from the substantial Q3 revenue beat detailed in the preceding section, TIGR’s bottom line for the latest quarter also benefited from positive operating leverage and cost reduction in the area of marketing.
The company’s staff costs and communication and market data costs grew by +7.5% YoY and +16.2% YoY to $26.0 million and $7.6 million, respectively. These two largest cost categories for UP Fintech saw relatively milder increases as compared to TIGR’s +26.6% top line expansion for the most recent quarter.
Taking into account the weak market environment as evidenced by the decline in commissions highlighted above, TIGR chose to optimize marketing & branding costs which dropped by -30.2% YoY to $5.2 million in Q3 2023.
Operating Metrics Point To Growth Deceleration On A Sequential Basis
In an earlier section of this article, I noted that UP Fintech’s YoY top line expansion of +26.6% for Q3 2023 was an improvement as compared to TIGR’s revenue growth rates of +23.5% and 26.0% in Q2 2023 and Q1, 2023, respectively.
But a review of TIGR’s key operating metrics suggests that the company is witnessing a slower pace of growth for the most recent quarter.
Firstly, UP Fintech’s number of new funded accounts (for which funds have been deposited) was 24,604 in Q3 2023, which was -15.4% lower QoQ than the 29,077 new funded accounts added for Q2 2023.
Secondly, net asset inflows for TIGR also moderated from in excess of $1.6 billion in the second quarter of 2023 to just over $1.5 billion for the latest quarter.
Thirdly, new customer additions for the company’s ESOP (Employee Stock Ownership Plan) business decreased by -10% QoQ from 30 for Q2 2023 to 27 in Q3 2023.
At the time of writing, UP Fintech’s share price had gone up by +7.2% to $5.21 (Source: Seeking Alpha price data) at around 6:15 am on November 27. This means that TIGR’s shares have already gone up by +45.5% year-to-date in 2023.
TIGR’s strong share price performance since the beginning of the year seems to be inconsistent with the growth deceleration trend reflected in the company’s operating metrics.
Final Thoughts
The better-than-expected Q3 2023 revenue and earnings have prompted me to revise my rating for UP Fintech to a Hold. But I still think that this isn’t the right time to award a Buy rating to TIGR, taking into account its operating metrics and year-to-date stock price performance.
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