Futu Holdings Ltd Q2 FY2025 Earnings Call

Hello, ladies and gentlemen. Welcome to Futu Holdings Second Quarter 2025 Earnings Conference Call. Today's conference call is being recorded. If you have any objections, you may now disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Daniel Yuan, Chief of Staff to CEO, Head of Strategy and IR at Futu. Please go ahead, sir.

Thanks, operator, and thank you for joining us today to discuss our Second Quarter 2025 Earnings Results. Joining me on the call today are Mr. Leaf Li, Chairman and Chief Executive Officer; Arthur Chen, Chief Financial Officer; and Robin Xu, Senior Vice President. As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events, which, by their nature, are not certain and are outside of the company's control. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC, including its annual report. With that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate.

Leaf will make his comments in Chinese, and I will translate.

Thank you all for joining our earnings call today. As of quarter end, total funded accounts reached approximately 2.9 million, representing a 41% increase year-over-year and an 8% rise quarter-over-quarter. We've reached a key milestone in our international expansion, which is, as of quarter end, over 50% of funded accounts are from clients outside of Futu Securities Hong Kong. Singapore and the U.S. are our largest international markets, followed by the rapidly expanding Malaysia and Japan, while Australia and Canada showed robust growth momentum. This expanding international footprint is a testament to our vision of becoming an influential global financial services platform.

We've reached a key milestone in our international expansion, as over 50% of funded accounts are from clients outside of Futu Securities Hong Kong. Singapore and the U.S. are our largest international markets, followed by the rapidly expanding Malaysia and Japan, while Australia and Canada showed robust growth momentum. This expanding international footprint is a testament to our vision of becoming an influential global financial services platform.

During the quarter, we acquired 204,000 new funded accounts, which is a 32% increase compared to the same period last year. Hong Kong maintained its position as the leader in new funded accounts for the third consecutive quarter. The heightened market volatility caused by trade tensions in early April, along with a significant recovery in trade routes and a surge of high-profile IPOs in May, increased retail participation. Our U.S. operations also experienced strong growth. In the second quarter, we became the official sponsor of the New York Mets, a partnership aimed at expanding our brand presence both in the U.S. and internationally. Additionally, we introduced cryptocurrency trading in most states in June, further enhancing our value as a comprehensive trading platform.

In early April, we experienced a decline, but we saw a strong recovery from trade routes and a surge in retail participation due to a series of high-profile IPOs in May. Our U.S. operations performed well, and in the second quarter, we became the official sponsor of the New York Mets, which will enhance our brand presence both in the U.S. and globally. Additionally, we introduced cryptocurrency trading in most states in June, further establishing our value as a comprehensive trading platform.

In Malaysia, we localized our offerings by introducing IPO financing services for local listings and the Malaysian stock earnings calendar. In Japan, we partnered with NASDAQ and the Japan Exchange Group to host our inaugural offline investment event, MooFest Japan, which attracted over 12,000 Tokyo investors, enhancing our brand recognition in the country. Following the successful debut of Futubull AI in Hong Kong, we launched moomoo AI in all international markets, providing investors with smarter tools for more efficient investing. Client engagement remains strong across regions. Our funded account quarterly retention rate was again above 98%, indicating high loyalty and satisfaction among our global client base.

We attracted over 12,000 Tokyo investors to sign up, strengthening our brand recognition in Japan. Building on the successful debut of Futubull AI in Hong Kong, we rolled out moomoo AI across all international markets, equipping investors worldwide with smarter tools for more efficient investing. Client engagement remains strong across regions. Our funded account quarterly retention rate was once again well above 98%, reflecting the high level of loyalty and satisfaction among our global client base.

By the end of the second quarter, total client assets reached a record HKD 974 billion, an increase of 68% year-over-year and 17% quarter-over-quarter. Notably, net asset inflow in the first half of 2025 almost doubled compared to the same period last year. Driven by strong net asset inflow and favorable mark-to-market depreciation from Hong Kong and U.S. equities, average client assets across all markets saw a sequential increase. In Singapore, average client assets and total client assets grew by 19% and 26% quarter-over-quarter, respectively. The group's margin financing and securities lending balance remained steady at HKD 51.4 billion by the end of the quarter. Although clients initially reduced leverage due to the sharp market downturn in early April, a gradual recovery in risk appetite led to a rebound in margin financing activity.

Average client assets across all markets increased sequentially, with a 19% rise in average client assets and a 26% increase in total client assets in Singapore quarter-over-quarter. The margin financing and securities lending balance stayed stable at HKD 51.4 billion by the end of the quarter. Although clients reduced leverage during the sharp market downturn in early April, a gradual recovery in risk appetite led to a rebound in margin financing activity.

In the second quarter, total trading volume reached HKD 3.59 trillion, which is a 121% increase year-over-year and a 12% increase quarter-over-quarter. The quarter experienced significant volatility due to trade talks, leading to unprecedented spikes in daily trading volume, and renewed excitement in the cryptocurrency market further boosted trading activity. U.S. stock trading volume increased by 20% sequentially to HKD 2.7 trillion, driven by electric vehicle and cryptocurrency stocks. In contrast, Hong Kong stock trading volume decreased by 9% quarter-over-quarter to HKD 833.5 billion, mainly due to reduced interest in the technology sector, although there was some support from higher turnover in new consumption sectors.

During the quarter, volatility from trade discussions resulted in significant increases in daily trading volume, while a resurgence in the cryptocurrency market further fueled trading activity. The trading volume for U.S. stocks rose by 20% sequentially to HKD 2.7 trillion, driven by electric vehicle and cryptocurrency stocks. In contrast, Hong Kong's stock trading volume decreased by 9% compared to the previous quarter, totaling HKD 833.5 billion, mainly due to reduced interest in the technology sector, although this was somewhat mitigated by increased activity in new consumption sectors.

Wealth management client assets reached HKD 163.2 billion at the end of the quarter, marking a 104% increase compared to last year and a 17% rise from the previous quarter. In Hong Kong and Singapore, we enhanced our fixed income products with bonds denominated in Hong Kong dollars and RMB, as well as floating rate bonds. We introduced principal protected structured products in Hong Kong, making us the first online broker to provide retail-facing structured products. Additionally, we became the only online brokerage platform in Hong Kong to offer China AMC Hong Kong's tokenized money market funds, reinforcing our leadership in digital asset innovation.

We strengthened our fixed income offerings with Hong Kong dollar and RMB-denominated bonds as well as floating rate bonds. In Hong Kong, we launched principal protected structured products, becoming the first online broker to offer retail-facing structured products. We also became the first and only online brokerage platform in Hong Kong to distribute China AMC Hong Kong's tokenized money market funds, solidifying our position at the forefront of digital asset innovation.

As of the end of the quarter, we had 517 IPO distribution and investor relations clients, reflecting a 15% increase year-over-year. The Hong Kong IPO market experienced further momentum from the first quarter with increased deal volume and greater investor participation. During the quarter, we served as joint book runners for several notable listings. In particular, the Haitian Flavouring and Food IPO drew a record 102,000 subscribers, making us the leader among all brokers in both subscriber numbers and total subscription amounts. In the first half of 2025, we collaborated with 6 of the 10 largest Hong Kong IPOs based on fundraising size and facilitated over HKD 10 billion in subscription amounts for 12 IPOs, highlighting our exceptional retail distribution capabilities.

We acted as joint book runners through multiple prominent listings. Notably, in the Haitian Flavouring and Food IPO, we attracted a record 102,000 subscribers, ranking first among all brokers in both number of subscribers and total subscription amounts. In the first half of 2025, we partnered with 6 of the 10 largest Hong Kong IPOs by fundraising size and facilitated over HKD 10 billion in subscription amounts for 12 IPOs each, underscoring our unparalleled retail distribution capabilities.

Next, I would like to invite our CFO, Arthur, to discuss our financial performance.

Thank you, Leaf and Daniel. Please allow me to walk you through our financial performance in the second quarter. All the numbers are in Hong Kong dollars, unless otherwise noted. Total revenue was HKD 5.3 billion, up 70% from HKD 3.1 billion in the second quarter of 2024. Brokerage commission and handling charge income was HKD 2.6 billion, an increase of 87% year-over-year and 12% quarter-over-quarter. The year-over-year increase was driven by higher trading volume, partially offset by the decline in blended commission rate. We adopt per share and per contract pricing model for U.S. stocks and U.S. option trading, respectively. As a result, brokerage income will grow at a slower rate than trading volume when our clients trade higher-priced stocks and options. The quarter-over-quarter increase was mainly driven by the sequential growth in trading volume. Interest income was HKD 2.3 billion, up 44% year-over-year and 11% quarter-over-quarter. The year-over-year increase was driven by higher interest income from security borrowing and the lending business, bank deposits, and margin financing. The quarter-over-quarter increase was driven by higher interest income from security borrowing and the lending business as well as higher interest income from bank deposits, partially offset by lower margin financing income due to sequential decline in daily average margin financing balance. Other income was HKD 444 million, up 176% year-over-year and 41% quarter-over-quarter. The year-over-year and the quarter-over-quarter increase was primarily attributable to higher fund distribution service income and the currency exchange income. Our total costs was HKD 671 million, an increase of 13% from HKD 574 million in the second quarter of 2024. Brokerage commission and handling charge expenses was HKD 161 million, up 84% year-over-year and 12% quarter-over-quarter. Both the year-over-year and the quarter-over-quarter increase was roughly in line with the movement of our brokerage commission and handling charge income. Interest expenses were HKD 378 million, flat year-over-year and down 20% quarter-over-quarter. The year-over-year increase in interest expenses associated with our security borrowing and the lending business was offset by the year-over-year decrease in margin financing interest expenses. The quarter-over-quarter decrease was mainly due to lower interest expenses associated with our security borrowing and the lending business as well as lower margin financing interest expenses because of the HIBOR rate decline. Processing and servicing costs was HKD 133 million, up 21% year-over-year and down 2% quarter-over-quarter. The year-over-year increase was largely due to higher data transmission fees and market information and data fees. The quarter-over-quarter decline was mainly driven by lower market information and the data fee as well as lower cloud service fees. As a result, total gross profit was HKD 4.6 billion, an increase of 82% from HKD 2.6 billion in the second quarter of 2024. Gross margin was 87.4% as compared to 81.6% in the second quarter of 2024. Operating expenses were up 21% year-over-year and 3% quarter-over-quarter to HKD 1.3 billion. R&D expenses were HKD 442 million, up 18% year-over-year and 14% quarter-over-quarter. The year-over-year and quarter-over-quarter increase was mainly driven by greater investments in AI capabilities. Selling and marketing expenses were HKD 429 million, up 27% year-over-year and down 7% quarter-over-quarter. The year-over-year increase was mainly attributable to higher new fund accounts, partially offset by lower client acquisition cost per unit. The quarter-over-quarter decrease was due to a sequential decrease in new fund accounts, partially offset by higher client acquisition cost per unit. General and administrative expenses were HKD 425 million, up 17% year-over-year and 2% quarter-over-quarter. The year-over-year increase was primarily due to an increase in general and administrative headcount. As a result, income from operations increased 126% year-over-year and 25% quarter-over-quarter to HKD 3.3 billion. Operating margin increased to 63% from 47.3% in the second quarter of 2024, mostly due to strong top line growth and operating leverage. Our net income increased by 113% year-over-year and 20% quarter-over-quarter to HKD 2.6 billion. Net income margin expanded to 48.4% in the second quarter as compared to 38.6% in the same quarter last year. Our effective tax rate for the quarter was 18.4%. That concludes our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead. Thank you.

Our first question comes from Cindy Wang from China Renaissance.

Congrats on the excellent results in the second quarter. I have two questions. First, the net asset inflow was very strong in the first half of this year and nearly double compared to last year. What is the reason behind this? Are you using any specific marketing content to attract asset inflow? How will you sustain this momentum in the second half? My second question is about the crypto trading that has launched in Hong Kong, Singapore, and the U.S. Could you provide some details on the number of clients and trading volume in the second quarter, the first half, and July? Also, are there any new products or markets set to launch in the second half?

In the first half, we experienced very strong asset inflows, which benefitted from the good performance of the U.S. and Hong Kong markets, positively impacting client asset inflows. We enhanced our product offerings, particularly in wealth management, crypto, and fixed income, which strengthened our position as a comprehensive investment platform for our users. This has led to increased client engagement and new asset inflows. We also focused on marketing and operations, particularly in overseas markets like the U.S., where our partnership with the Mets in the second quarter led to significant new client acquisitions and heightened brand recognition in various international markets. Notably, in the second quarter, asset inflows from overseas markets outside Greater China nearly surpassed what we achieved in similar markets in 2024, which is quite impressive. Looking ahead to the second half, we plan to further enhance our brand visibility with more physical store openings and introduce new products in wealth management and crypto. For example, we aim to offer crypto transfer functionalities in overseas markets alongside Hong Kong. Additionally, we saw strong momentum in crypto trading, with crypto asset values reaching HKD 4 billion at the end of the second quarter, marking over a 40% quarter-on-quarter increase. We believe this trend will continue into the third quarter as more paying clients engage in crypto trading, and we have plans for new products in the crypto trading sector as well. Furthermore, we are conducting feasibility studies for new markets where we seek to obtain exchange licenses. Thank you.

Next, we have Chiyao Huang from MS.

Let me briefly translate two questions. One is about cryptocurrency. I'm curious about the mid- to long-term strategic outlook for our crypto business concerning product licensing and potential monetization. Specifically, what are the strategic advantages of obtaining a crypto exchange license in Hong Kong? The second question pertains to the Japanese market, where we have been operating for nearly two years. What is our understanding of this market? Have there been any changes in our insights, especially regarding the competitive environment and the strengths of existing players? How is Futu addressing this competition? What key value do we offer currently, and how do our target clients differ from those of our competitors?

In my opinion, our overall strategy in the crypto sector can be summarized with the acronym RACE, which stands for Real-world Assets, Advanced Technologies, Convergence, and Exchange. The first aspect, Real-world Assets, reflects our solid presence in traditional finance, where we hold significant bargaining power and strong positions in traditional asset offerings. For example, we have established partnerships with over 80 top fund managers and recently partnered with China Asset Management in Hong Kong to be the exclusive retail distributors for their first tokenized money market funds. I believe that future collaborations in fund distribution and connecting traditional finance with Web3 will be promising areas to develop. The second aspect, Advanced Technologies, sets us apart from our peers as we prioritize safety in the development of Web3 products, with plans to further integrate AI capabilities into this segment. Thirdly, Convergence refers to the blending of traditional finance with crypto-native finance, which will create new client referrals and opportunities for cross-selling. We recently launched trading products for Solana, catering to all retail investors in Hong Kong, and we plan to introduce paper trading for Solana to engage new users in the crypto space soon. Finally, Exchange relates to our progress in the VATP license application in Hong Kong, where we are studying the feasibility of additional license applications in other markets. This exchange will serve as a link between crypto-native finance and traditional finance. Currently, our revenue primarily comes from trading, but I believe that in the long run, the VATP will reduce our upstream costs, improve user experience, and ensure seamless client interactions. Our target client base extends beyond retail investors to include potential offers for institutional clients as well. With the many new initiatives coming from Hong Kong regulators, such as the Aspire initiative announced this year, I see significant monetization opportunities in areas like derivatives and staking, which will lead to increased revenues over time, benefiting from regulatory advancements.

Chiyao, this is Daniel. I will take the second question regarding Japan. I think I'll first share our understanding of the competitive landscape and market dynamics, and then I'll discuss what we have done in Q2 accordingly. In terms of the competitive landscape, as we know, it has been a steady market structure for the past couple of years, with SBI and Rakuten consistently holding 80% of market share among retail investors. Both have constructed robust ecosystems of one-stop financial services, creating many sticky touchpoints with the end clients. That said, we think moomoo still has a unique value proposition, especially for self-directed investors interested in the U.S. markets, whether it's our pricing, market data, trading experience, or our social community; these are all very friendlier and much more competitive for our self-directed investors. We believe there is a real gap in the market for us to fill. Additionally, something we have recognized and previously shared is that branding is essential in Japan and takes time to gain the trust of retail investors. Therefore, in Q2 we conducted many branding activities, including advertising and hosting events with other prominent financial institutions and organizations in Japan. Regarding what we've accomplished in Q2 based on these insights, we have optimized our U.S.-related trading capabilities and streamlined that investing experience. In Q2, we launched U.S. options trading, and we have noticed that the penetration of U.S. options and the revenue contribution from U.S. options have increased steadily month-over-month. We also started supporting deposits and outflows of U.S. dollars, eliminating the prior need for clients to exchange their funds into Japanese yen. Our trading volume in Japan increased by over 50% quarter-over-quarter, showcasing high engagement from clients. This all represents encouraging signs and data points, affirming our decision to optimize the trading experience for both U.S. stocks and Japan stocks. Furthermore, we introduced AI-related capabilities in Japan; the adoption rate of the AI chatbot is the highest among all our international markets with a customer satisfaction rate consistently above 90%. Many self-directed Japanese investors are interested in conducting their research and utilizing these tools for informed investment decisions. We aim to leverage AI financial technology to further lower the barrier to investing in U.S. stocks as there is growing demand we seek to cater to. We've also invested effort in brand building; in Q2 we partnered with NASDAQ in the Japan Stock Exchange to host the MooFest event, drawing over 12,000 retail investors in Tokyo. We believe that over the past couple of quarters, we've substantially elevated our brand recognition and trust among retail investors in Japan.

Next, we have You Fan from CICC.

This is You Fan from CICC, and I have two questions. First, could you provide more detail about client acquisition, net asset inflow, and trading volume for the third quarter? Second, regarding the U.S. market, we've observed solid growth this year. Can you share more information and your plans and targets for the U.S. market?

Well, thank you, You, for these 2 questions. This is Daniel. I will take both questions. First of all, regarding the third quarter quarter-to-date trend. Based on the run rate, we expect a steady Q-on-Q net new funded accounts, so it's fairly steady compared to the last quarter. We've also observed a positive mark-to-market impact, which, coupled with net asset inflow, should continue to push total client AUM to grow sequentially. We're noticing very active trading behaviors as well, and based on the current run rate, if market sentiment persists, we believe there is a chance for a Q-on-Q increase in trading volume on top of the already high base from Q2. Regarding our development in the U.S. market, a few data points to share. We've seen a positive flywheel effect, thanks to continued product development and strengthening our brand equity. The net new additions in terms of funded accounts in the U.S. continue to contribute meaningfully to the group. In Q2, we noted that the number of options traders and the total number of options contracts traded reached historic highs. In fact, both numbers registered increases for 5 consecutive quarters, which we view as highly encouraging. Also, in Q2, we formed a partnership with the New York Mets, deeply embedding ourselves in this ecosystem. We believe this strategic partnership helps elevate our brand image among the tens of millions of fans in the U.S. Besides brand building, we've iterated on our product offerings as well; in June, we launched cryptocurrency trading in most U.S. states, now supporting over 30 mainstream crypto trading pairs, with a rising adoption rate among our U.S. clients. We also launched moomoo AI, including AI chatbots, AI-powered stock investment tools, and various technical charts and stock-related fundamental data. Looking forward, we plan to introduce AI stock screeners to assist our investors in navigating the vast stock landscape. We are optimistic about the growth prospects in the U.S. market. Let me translate.

Next, we have Charles Zhou from UBS.

I have two questions. First, can you provide more details about the regional mix of client acquisition in the second quarter? Additionally, we've observed a sequential slowdown in customer acquisition on a quarter-over-quarter basis. We also came across news reports regarding stricter onboarding procedures for Mainland Chinese clients in Hong Kong in June. What impact do you expect this to have on client acquisition moving forward, and do you foresee any changes to your full-year guidance of 800,000?

Regarding the new paying client fund accounts we acquired in the second quarter, Hong Kong and Malaysia collectively accounted for over 50% of new client acquisitions in this period. The remaining portion mainly came from Singapore, the U.S., and Japan. In total, for the first half of this year, we've achieved 460,000 new funded accounts, which is over 50% of our annual target of 800,000 new fund accounts. We are confident in achieving our full-year target. Currently, we do not see any significant implications from the new regulations regarding client onboarding in Hong Kong; so far, all new client acquisitions across different markets are healthy and robust. Therefore, I remain very confident in achieving our full-year target.

Next, we have Emma Xu from BofA Securities.

The first question is about the interest income, which is significantly stronger than expected. You mentioned that gross interest income increased mainly due to higher earnings from stock borrowing and lending, along with interest income from idle cash. However, HIBOR dropped considerably in the second quarter. Why didn't this negatively impact your interest income? Conversely, interest expenses declined due to lower costs associated with margin financing and lending. Why is there such a divergence between gross interest income and interest expenses? What trends are you forecasting for net interest income in the third quarter? The second question pertains to other income, which grew substantially in the second quarter, up 42% quarter-over-quarter and 176% year-over-year. Could you elaborate on the factors driving this strong growth and whether you expect this momentum to continue?

For the first question on interest income, although we've seen a significant decline in HIBOR that could negatively impact our interest income, we have benefitted from several positive factors. Increased market volatility has led investors to take different positions, resulting in increased interest on the short side during the second quarter. We've particularly profited from hard-to-borrow stocks due to lending. Additionally, clients locking in profits amid this volatility have resulted in higher cash positions within their portfolios, fully offsetting any negative impact on interest yield. Furthermore, in the third quarter so far, we've noticed a slight rebound in HIBOR, while client cash positions have remained relatively high along with strong client asset inflows. Consequently, I believe the momentum for interest income will continue into the third quarter. Regarding the second question on other income, we have indeed benefited from FX income and management fees from our wealth management products. I believe these two revenue streams can continue to grow alongside our wealth management product expansions. Furthermore, if market volatility continues, we can expect higher demand for FX exchange. In addition to these areas, we've also recorded technology service fee income from our technology service provision in the second quarter.

Thank you for all the questions. I will now pass back to Daniel for closing remarks.

That concludes our call today. On behalf of the Futu management team, I would like to thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representatives. Thank you, and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.