Updated: Aug 1
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TIGR runs its proprietary trading platform - Tiger Trade which gives international investors access to a vast array of financial products
Trading at a Gross Profit Multiple of 22.18x with YoY 9M20 Net Revenue Growth of 137%
Management is focused on expanding its geographic operations into high potential markets such as India
Strong revenue growth in 2020 on the back of expansion into Singapore and increased trading levels amongst millennials and Gen Z
Achieved profitability for the first time in 1Q20
When Tiger Brokers (TIGR) allowed trading of SGX securities on its platform in June of 2020, it immediately caught my attention for its low commission rate of 0.08% and easy to use mobile application.
However, given that the trading platform was relatively new and thus had yet to garner many reviews by the public, I was hesitant to port over to the new broker in town.
Fast forward 6 months and many raving reviews later, I find myself not only looking into shifting to Tiger Brokers but also at its stock. It is currently listed as Up Fintech Holding Ltd (TIGR:US) on the NASDAQ and has surged more than 262% in the last 1 year. Below I will examine TIGR's business and if there remains the potential for growth.
Founded in 2014, the founder-led company runs its proprietary trading platform - Tiger Trade which gives international investors, the ability to access the U.S., Hong Kong, Singapore, and Australian equity markets in addition to A-shares and other financial instruments such as futures and options. On top of brokerage, it offers value-added services including ESOP management, investment banking, wealth management, and investor education.
TIGR derives its revenue from 3 main sources – Commissions (51.3%), Interest income (21.3%), Financing service fees (4.5%), and Others (23.1%). Other revenues mainly comprise IPO distribution services.
In the extremely competitive world of brokerages, TIGR has found its edge over its peers by introducing lower commission rates and developing its proprietary trading platform - Tiger Trade.
Summary of Competitive Advantages of Tiger Brokers
1. Proprietary mobile and online trading platform
Image: Tiger Brokers
As part of its "mobile-first" strategy, TIGR has developed a phone application that has one of the most seamless interfaces. It includes various tabs such as 'Quote' where users can view their watchlist and 'Discover' where stocks with the highest volumes are listed. In addition, the platform regularly hosts trading competitions and has a social media-like feature where users can follow others and publish posts. The increased social interaction on Tiger Trade helps to boost its customer stickiness in the long term.
The emphasis on mobile in an attempt to target the younger generation has worked out well with more than 80% of new users in 3Q20 under 45 years old.
2. A wider array of financial products and services
Tiger Trade offers more than public equities as mentioned in the introduction above. Eager to expand its product offering, it introduced “Fund Mall” in 1Q20 where users may subscribe to a wide range of mutual funds that span numerous asset classes from major institutional asset managers. It continues to increase the number of funds and this helps TIGR to be a "one-stop-shop" for investors by cross-selling them multiple financial products.
3. Strong Tiger Community
TIGR has a community website (laohu8.com) that hosts discussion forums, education, and news. Furthermore, the Tiger Trade application has an in-built community feature where users can interact and exchange stock ideas.
Is Tiger Brokers safe?
This is a common question amongst investors given Tiger Trade is relatively new. However, TIGR uses a reputable backend clearing agent, Interactive Brokers, which has more than 42 years of experience as a Broker-Dealer and a consolidated equity capital of more than US$8.5 billion.
In addition, Tiger Brokers (Singapore) is licensed by the Monetary Authority of Singapore (MAS) and is in compliance with the Securities and Futures Act.
Thus, while its interface is new, its backend processing system is not and should be trusted.
TIGR is currently led by its Founder, Chief Executive Officer, and Director Mr. Wu Tianhua who owns 17.28% of common stock as of 31 March 2020. Before founding the company, he worked at Youdao (NYSE: DAO) of NetEase Inc., where he was responsible for core search. He obtained both bachelor’s and master’s degrees in computer science and technology from Tsinghua University.
Cognisant of the benefits of expanding into new geographic markets, the management has stated that it intends to apply for appropriate licenses or acquire companies that hold such licenses that allow it to provide its products and services to investors in countries such as India and has been good on their word of expanding into Singapore in 2020.
Management continues to significantly invest in R&D to increase the competitiveness of its platform as seen by a high headcount of 40.8% of its employees in the Research, Development, and Technology department.
The Company commenced its share repurchase program on April 1, 2020. As of November 24, 2020, the company had repurchased an aggregate of 695,287 ADSs for an approximate consideration of US$2.2 million representing an approximate cost of US$3.16 per share.
Growth of Customer Base
TIGR continued to grow its user base in 2020 through the introduction of new products, expansion into Singapore, and surge in investment optimism amongst millennials and Gen Z who TIGR are targeting.
Is growth sustainable?
There remain many financial products to introduce such as Robo-advisory as well as new geographic markets to expand into like India where management cited their intent to expand into in its Annual Report 2019 (pg 47).
An interesting angle to look from is the increasing percentage of funded accounts. As of 3Q20, only 22.01% of customers had deposits implying much room for conversion into funded accounts and thus, possibly an increase in trading volume.
Leveraging on its mobile application and "refer a friend" promotion, TIGR has the potential to capture a greater market share of millennials and Gen Z who enter the investing arena.
In 3Q20, TIGR earned a revenue of US$38 million from 214,700 funded accounts. Extrapolating the data, TIGR will record a revenue of $USD 708.77 per funded account per year. This implies that the 166 million Gen Z and millennial population in the US represents a US$ 177.7 billion total addressable market.
If TIGR can continue to capture market share at a consistent rate, high rates of growth can be expected to continue.
1. Net Revenue Growth
TIGR's net revenue has been growing steadily since 2016 and experienced a tremendous surge in 2020 as a result of the onboard of Singapore customers, increased trading volume, and an increase in IPO distribution services. In addition, the pandemic has spurred many to take up day trading for entertainment and profits as reported by CNBC.
2. Gross Margin
TIGR continued to deliver strong gross margins, albeit a drop in the last 2 years. I speculate this is partly due to TIGR offering new users opening promotions where a limited number of free/discounted trades are given. Thus, its execution and clearing charge increased more than proportionately to its revenue, resulting in lower gross margins. I believe the 9M20 figure understates its long term gross margin.
3. Recently Achieved Profitability
The recent surge in active customers and thus increase in trading-related revenue has led to TIGR achieving profitability for the first time. Given that a proportion of customers are still under the opening promotion commissions, I forecast that the gross margin will recover together with an increase in revenue, leading to further upside to net income.
4. Other Revenues Proportion is Inconsistent
TIGR's 3 main revenue streams (commissions, interest income, and finance servicing fees) have been growing steadily over the last 12 months. However, the revenue from other sources, mainly IPO distribution services, is extremely lumpy.