Tiger Brokers, one of the first fintech firms to let Chinese investors trade American stocks, is now selling its own shares on a US exchange.
Up Fintech Holding, the company behind Tiger Brokers, filed for an initial public offering (IPO) on Nasdaq last Friday. The startup backed by veteran investor Jim Rogers is looking to raise US$150 million, according to its preliminary prospectus. No pricing terms were disclosed.
Through its app Tiger Trade, Tiger Brokers provides online brokerage services to Chinese-speaking investors wishing to trade US- and HK-listed shares and other financial products. It became a unicorn after its Series C round of funding in August 2018. Besides Rogers, other investors of Tiger Brokers include Xiaomi, the largest US online brokerage by trading volume Interactive Brokers and ZhenFund.
According to the prospectus, the New Zealand-licensed Tiger Brokers has posted strong growth since launching its app in 2014. Its number of users rose from 77,000 in the first quarter of 2016 to 1.58 million in the fourth quarter of 2018. Of its revenue in 2018, 77.6% came from commission fees, which increased to US$33.56 million in 2018 from US$5.48 million in 2016. Its other revenue sources consist of interest income or financing service fees related to margin financing provided by the company or third parties.
The company plans to use the raised proceeds for product development, sales and marketing, technology infrastructure; as well as to meet the increased capital adequacy requirements in New Zealand and other jurisdictions; among other things. It will also seek to expand to more markets and apply for operating licenses locally.
Tiger Brokers remains in the red. In 2018, it had a net loss of US$44.29 million, widening from US$7.93 million in 2017 and US$10.81 million in 2016. The increased losses in 2018 were mainly due to an increase of US$43.7 million in staff remuneration, and as marketing and branding costs doubled to US$10.57 million in 2018 from US$5.29 million in 2017.
Growing younger market
Tiger Brokers' success is the result of Chinese-speaking investors' increased interest in buying overseas assets. The founder and CEO Wu Tianhua, also the biggest shareholder of Tiger Brokers, himself represents this fast-growing group.
Wu belongs to a generation of “internet elite” in China. A graduate of the prestigious Tsinghua University, he co-founded Youdao, an online education startup created under the Nasdaq-listed NetEase group, which has hundreds of millions of users.
He wanted to "cash in" on his knowledge of digital companies by investing in their stocks, but many such companies in China were listed in the US or Hong Kong, and not the mainland.
Seeing that most brokerage services at the time were not used to Chinese-speaking investors and often failed to serve them well, Wu created Tiger Brokers, building a Chinese-language trading system from scratch.
As a user himself, Wu understood only too well the problems faced by most Chinese investors wanting to invest in foreign stock markets, and wanted to solve them.
An ordinary investor opening a trading account in the Tiger Brokers app would also face less paperwork and a simplified process, compared with traditional banks or brokerages trading foreign equities. Finally, Wu also created a Chinese-language community for Tiger Brokers users to talk stocks.
According to Tiger Brokers’ IPO prospectus, 75% of its users were younger than the age of 35 and 86.6% had an annual income of over US$40,000.
"Such customers have great potential to grow their personal wealth and engage in more investment activities in the future, " the prospectus said.
Rival brokerage listing too
Tiger Brokers' IPO filing came two months after Futu Holdings, a rival Chinese online brokerage, filed for a US listing that could raise up to US$300 million.
Founded in 2012, Futu Holdings is backed by Tencent and had US$115.8 billion worth of trading volume in 2018, compared with US$119.3 billion posted by Tiger Brokers. Futu Holdings turned profitable in 2018.
Tiger Brokers now allows investors to trade stocks, options, warrants and other financial instruments listed on the major stock exchanges including but not limited to Nasdaq, New York Stock Exchange and Hong Kong Stock Exchange; as well as A shares that are eligible under Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs.
With offices in the US, New Zealand, Singapore and China, Tiger Brokers had 446 employees around the globe, with 199 of them in R&D, as of December 2018.
"Our mission is to make investing more efficient through technology for everyone,” the online brokerage said in the prospectus. And it planned to do so by expanding its demographic coverage of investors, attracting more institutional investors, expanding into the asset and wealth management business, and strengthening its technological capabilities through continuous investment.