Futu Holdings Limited (NASDAQ: FHL) (“Futu” or the “Company”) is an advanced technology company transforming the investing experience by offering a fully digitized brokerage platform. Technology permeates every part of the business, allowing the Company to offer a redefined user experience built upon an agile, stable, scalable and secure platform. Futu primarily serves the emerging affluent Chinese population, pursuing a massive opportunity to facilitate a once-in-a-generation shift in the wealth management industry and build a digital gateway into broader financial services.
Futu launched the business on the premise that no one should be precluded from investing on the basis of prohibitive transaction costs or market inexperience. It thus designed a platform around an elegant user experience integrating clear and relevant market data, social collaboration and best-in-class trade execution, finding that by delivering the Futu’s vision through a purpose-built technology infrastructure it could disrupt traditional investing conventions. Over the last eight years Futu has continuously enhanced its technology and built a comprehensive, user-oriented and cloud-based platform that is fully-licensed to conduct securities brokerage business in Hong Kong. This serves as a foundation from which the Company executes its growth strategies with an operating efficiency that allows it to offer commission rates that are approximately one-fifth of the average rate offered by the leading players in Hong Kong, according to Oliver Wyman, creating a massive barrier to entry.
Futu provides investing services through its proprietary digital platform, Futu NiuNiu, a highly integrated application accessible through any mobile device, tablet or desktop. The Company’s primary fee-generating services include trade execution and margin financing which allow its clients to trade securities, such as stocks, warrants, options and exchange-traded funds, or ETFs, across different markets. Futu surrounds its trading and margin financing services and enhances its user and client experience with market data and news, research, as well as powerful analytical tools, providing clients with a data rich foundation to simplify the investing decision-making process.
Futu broadens its reach and promotes the exchange of information through NiuNiu Community, the Company’s social network services. In contrast to traditional investing platforms and other online brokers, Futu has embedded social media tools to create a network centered around its users and provide connectivity to users, investors, companies, analysts, media and key opinion leaders. This fosters the free flow of information, reduces information asymmetry and supports the investing decision-making process. For instance, users can exchange market views, watch live broadcasts of corporate events and participate in investment education courses offered through the NiuNiu Classroom. Importantly, Futu’s social network serves as a powerful engagement tool. The user activities provide invaluable user data which informs the Company’s product development and monetization efforts.
Futu has a young, active and rapidly expanding user and client base. Our clients are, on average, 35 years old and generally high earning. Approximately 43.8% of its clients work in internet, information technology or financial services industries. Futu’s client base is loyal. The Company retained over 95% of the paying client base on a quarterly basis in 2016, and have retained over 97% of the paying client base on a quarterly basis since the beginning of 2017. The Company grows the client base mainly through online and offline marketing and promotional activities, including those through external marketing channels that it cooperates with and directly pays for as well as promotions and marketing campaigns conducted on the Company’s platform, word-of-mouth referrals and its corporate services.
Futu works with its strategic investor, Tencent Holdings Limited (“Tencent”), across a number of cooperation areas in a mutually beneficial relationship. The collaboration is in part driven by the shared values of technological excellence and innovation. Collaborating with Tencent creates meaningful advantages to the Company. In December 2018, Shenzhen Futu, one of the Company’s operating entities in China, entered into a strategic cooperation framework agreement with Shenzhen Tencent Computer System Co., Ltd., a subsidiary of Tencent. Pursuant to the strategic cooperation framework agreement, subject to further definitive agreements to be entered into between the parties and to the extent in compliance with applicable laws and regulations, Tencent agreed to cooperate with Futu in traffic, content and cloud areas through Tencent’s online platform. In addition, to the extent permitted by the applicable laws and regulations, Futu and Tencent agreed to further explore and pursue additional cooperation opportunities for potential cooperation in the area of fintech-related products and services to expand both parties’ international operations. Tencent also agreed to cooperate with the Company in the areas of ESOP services, administration, talent recruiting and training.