We are long shares of UP Fintech Holding Limited. Please click here to read full disclosures.
We are long shares of UP Fintech, the holding company of Tiger Brokers, which we believe is positioned to become the Robinhood of China. Love it or hate it, you have to admit that Robinhood has created an enormous amount of value for its investors in a very short time: having debuted its trading app in 2015, the company is now reportedly valued at more than $20 billion. Even in a market full of established online brokerages like E*TRADE (recently acquired for $13 billion) and TD Ameritrade (recently acquired for $26 billion), Robinhood carved out a sizable niche for itself with its low fees, user-friendly design, and mobile-first approach.
Tiger Brokers shares a similar approach but in a less mature market. Founded by a Tsinghua University computer-science graduate then in his late twenties, Tiger also launched in 2015; today, it has more than a million customer accounts, and its app facilitates over a billion dollars’ worth of trades every day (more than double the prior year’s level). With its low fees (commissions average 0.03%) and sleek design, Tiger has rapidly gained a following among tech-savvy Chinese millennials – 72% of its customers are under 35 years old – in part by making it cheaper and easier for Chinese citizens to invest in US-listed stocks. A strange aspect of the immense growth in the Chinese economy is that many of China’s most prominent and exciting firms, like Alibaba and NIO, trade on American stock exchanges, which ordinary Chinese citizens have historically had difficulty getting access to. By streamlining and simplifying the process, Tiger has outflanked incumbent banks and brokers, which have traditionally focused on serving older and wealthier clients via physical offices and in-person salesmanship. Tiger’s entrepreneurial spirit and scalable technology have also empowered it to expand into new geographic markets, like Singapore and Australia, and adjacent business lines, like IPO underwriting. Moreover, unlike so many other fast-growing companies, Tiger has actually begun to turn a profit, gaining enough operating leverage to achieve a respectable 21% pretax profit margin in the third quarter.
We believe Tiger has a long runway for continued growth. Though China is famous for its high savings rate, households have tended to invest in real estate and bank deposits, with equities accounting for a much smaller fraction of total wealth than in Western developed markets. But as more Chinese investors, especially young ones, become familiar with global capital markets, portfolios are shifting, freeing up a gargantuan addressable market. Already, Chinese household wealth totals $78 trillion, and we estimate that in 10 years it will exceed $200 trillion – almost twice the current US level. There will be room for multiple online brokerages worth tens of billions of dollars, and we believe Tiger – currently valued at $2.7 billion – will be one of them.
Despite its impressive track record and vast potential, Tiger has been overlooked. According to Bloomberg, zero sell-side firms cover the company; during its past three earnings calls, only two people, on average, asked questions. It’s time to enter the tiger’s den before it gets crowded.
Read the full report here.