Expansion Into New Markets Will Boost Customer Base And Trading Volumes

Key Takeaways

• Expansion in Southeast Asia and new markets is expected to drive revenue growth through increased customer base and trading volumes.
  
• Diversification into wealth management services and improved operational efficiency could enhance revenue streams and profit margins.
  
• Rising operating costs and foreign exchange losses, along with zero-fee policies, could undermine UP Fintech Holding’s revenue growth and profit margins.

Catalysts

Provides online brokerage services focusing on Chinese investors.

• The significant increase in newly funded accounts, particularly in Singapore and Southeast Asia, and expansion into new markets like Hong Kong, Australia, and New Zealand, are expected to drive future revenue growth by expanding the customer base and increasing trading volumes.
  
• Continued enhancement of product offerings, such as the addition of Hong Kong stock options and short-selling features, is likely to improve trading activity and commission income, contributing to revenue growth.
  
• The growth in wealth management services, with AUM exceeding $1 billion and a considerable number of new users adopting these services, suggests a diversification of revenue streams and potential improvement in net margins through higher-margin advisory and management fees.
  
• Ongoing improvement in operational efficiency and operating leverage, with a notable increase in operating profit margins and stable operating costs despite revenue growth, indicates potential for further earnings growth without a proportional increase in expenses.
  
• Expansion into the Hong Kong market, with a high average client asset and ARPU, suggests a strong potential for increased commission income and trading volume, thereby positively impacting overall revenue and profit.

UP Fintech Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming UP Fintech Holding's revenue will grow by 29.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.1% today to 14.9% in 3 years time.
• Analysts expect earnings to reach $89.9 million (and earnings per share of $0.4) by about March 2028, up from $30.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $105 million in earnings, and the most bearish expecting $31.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.9x on those 2028 earnings, down from 41.1x today. This future PE is greater than the current PE for the US Capital Markets industry at 19.9x.
• Analysts expect the number of shares outstanding to grow by 0.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.33%, as per the Simply Wall St company report.

UP Fintech Holding Future Earnings Per Share Growth

Risks

• The decline in the cash equity take rate and the future trading volume amplifying challenges could negatively impact future commission revenue, potentially affecting overall earnings.
  
• Increases in operating costs, such as employee compensation and marketing expenses, could limit improvements in net margins despite strong revenue growth.
  
• The occurrence of foreign exchange losses, particularly due to subsidiaries not using the U.S. dollar as their base currency, presents a risk that could affect net income unpredictably.
  
• Offering zero commission and zero platform fees on Hong Kong trading volume may hinder potential revenue growth, influencing the company’s profit margins despite increased regional activity.
  
• Potential uncertainties related to external factors, such as U.S. Federal Reserve interest rate decisions, could disrupt financial stability and affect expected profit outcomes.

Valuation

• The analysts have a consensus price target of $8.097 for UP Fintech Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.2, and the most bearish reporting a price target of just $2.88.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $601.5 million, earnings will come to $89.9 million, and it would be trading on a PE ratio of 21.9x, assuming you use a discount rate of 8.3%.
• Given the current share price of $6.78, the analyst price target of $8.1 is 16.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.