Hello, ladies and gentlemen. Welcome to Futu Holdings third quarter of 2021 conference call. At this time, all participants are in listen- only mode. After management's prepared remarks, there'll be a question- and- answer session. Today's conference call is being recorded. If you have any objection, you may 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 and Head of IR at Futu. Please go ahead, sir.
Thanks, operator, and thank you for joining us today to discuss our third quarter 2021 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 registration statement. With that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate.
Thank you all for joining us today. In the third quarter, we added 166,000 net new paying clients, bringing our total paying clients to about 1.2 million. This was the seventh consecutive quarter where over 50% of new paying clients were acquired organically. Our quarterly paying client retention rate slightly slipped to 97% due to dampened market sentiment. We continue to execute on our overseas strategy. In Singapore, we iterated on client incentives and budget allocation between brand and performance marketing to optimize client acquisition efficiency. In the third quarter, we observed higher retention rate and consistent outside inflow across client cohorts. We continue to expand product offerings in Singapore by launching U.S. IPO subscription, structured warrant, and fund products.
In Hong Kong, we remain the top-of-mind retail broker as the number of our Hong Kong users already constituted one-third of the adult population in Hong Kong. We intend to further penetrate into the young and tech-savvy population, and expand into the demographics that are currently not well represented in our client base. Despite the new players entering into the Hong Kong market, which has always been a very crowded space, we are confident to extend our leadership position because we believe the key success factors of a broker include a trustworthy brand, superior user experience, an end-to-end proprietary trading infrastructure, a strong capital base, and close relationships with commercial banks, which all take time to cultivate and are where our competitive strengths lie.
我们在两个季度之前获取的客户，其户均净入金和户均资产余额均增长至原来的三倍。
As of quarter end, total client assets were HKD 424 billion, representing 111% year-over-year increase and 16% quarter-over-quarter decrease. The sequential decrease was largely due to the sharp pullbacks in Chinese new economy stocks, though this mark-to-market impact was alleviated by robust net asset inflow. Average client asset balance dropped to HKD 363,000, which was dragged by lower account balance in new markets. However, in spite of the challenging market backdrop, both total and average client assets in Singapore increased sequentially by 52% and 11% respectively. For clients that we acquired two quarters prior, their average net asset inflow and account balance both tripled.
本季度交易量为1.4万亿港币，同比增长33%，环比增长3%，其中美股交易量为6,800亿港币，占总交易量的50%。美股交易量相比下降19%，主要是由于美国科技股的交易换手率较低。与此同时，我们在香港期货和期权交易市场的份额持续提高。
Trading volume was HKD 1.4 trillion, up 33% year-over-year and 3% quarter-over-quarter. HKD 680 billion, or 50% of total trading volume, came from U.S. stock trading, down 19% quarter-over-quarter due to lower trading turnover of U.S. tech stocks. Meanwhile, we continue to gain market share in Hong Kong futures and options trading.
本季度富途大象财富与更多知名的资产管理公司建立了合作关系，其中包括施罗德和凯雷。至此，我们的合作伙伴总数已增加到五十六家。截至第三季末，财富管理客户总资产达一百七十七亿港币，同比增长132%，约10%的有资产客户持有财富管理产品。为了进一步满足高净值客户的需求，我们引入了更多的另类基金。同时我们也与诸多知名的资产管理公司合作，举办在线专项研讨会。
Money Plus established new partnerships with prominent asset managers, including Schroders and Carlyle, bringing our total asset management partners to 56. By the end of the third quarter, client assets and wealth management reached HKD 17.7 billion, up 132% year-over-year. About 10% of our paying clients held wealth management positions. We further leaned into products and services for high net worth clients by onboarding more alternative funds and working with renowned asset managers to offer curated online workshops.
截至季末，我们拥有215家IPO分销和投资者关系客户，以及325家ESOP客户，同比分别增长了165%和158%。在第三季度，喜茶、简爱酸奶等公司开始使用我们的ESOP服务。另外，已经有超过700家公司在我们平台上创建了企业号，包括超过150家市值在100亿港币以上的上市公司。第三季度，比亚迪、京东健康、泡泡玛特和Anta等诸多新经济公司开始使用我们的企业号，与个人投资者沟通，发布最新业务消息。
As of quarter end, we have 215 IPO and IR clients as well as 325 ESOP solution clients, up 165% and 158% year-over-year. Companies, including HEYTEA and Simple Love Yogurt, adopted our ESOP service in the third quarter. Over 700 companies have opened enterprise accounts with us, including over 150 listed companies with market capitalization north of HKD 10 billion. In the third quarter, BYD Auto, JD Health, Pop Mart and Anta started to use their enterprise account to communicate with retail investors and post business updates.
接下来有请我们的首席财务官 Arthur 介绍我们的财务表现。
Next, I'd like to invite our CFO, Arthur, to discuss our financial performance.
Thanks, Li and Daniel. Please allow me to walk you through our financial performance in the third quarter. All the numbers are in Hong Kong dollars unless otherwise noted. Our total revenue was HKD 1.7 billion, up 83% year-over-year and 10% quarter-over-quarter. Brokerage commission and handling charge income was HKD 933 million, an increase of 66% year-over-year and 17% quarter-over-quarter. The increase was driven by the 33% year-over-year growth in total trading volume and a higher blended commission rate of 6.9 basis points. Since most of our clients adopt the commission per share pricing model for U.S. stock trading, due to a decrease in the average share price of the stock they trade, resulting in a higher blended commission rate. Higher contribution from derivatives trading also support our commission rate expansion.
Interest income was HKD 632 million, an increase of 129% year-over-year and 4% quarter-over-quarter. The year-over-year and the quarter-over-quarter increase was both driven by higher margin financing and the security lending income, partially offset by lower IPO financing interest income. Other income was HKD 166 million, up 56% year-over-year and down 2% quarter-over-quarter. The year-over-year increase was primarily due to increase in enterprise public relations service charge income and the currency exchange service income. The quarter-over-quarter decrease was mainly due to the decrease in IPO subscription fees and underwriting fee income and an inactive IPO market. Our total cost was HKD 267 million, an increase of 47% from HKD 182 million in the third quarter of 2020.
Brokerage commission and handling charge expenses was $125 million, an increase of 24% year-over-year, and a decrease of 14% Q-o-Q. The expenses didn't grow in line with the brokerage commission and handling charge income due to our upgraded service package with our Futu Clearing Inc. and the lower IPO subscription fees. Interest expenses was $74 million, up 57% year-over-year and down 7% Q-o-Q. The year-over-year increase was due to higher margin financing interest expenses and higher expenses associated with our security borrowing and lending business, though partially offset by lower IPO financing interest. Interest expenses didn't increase in line with interest income as we increasingly shift our funding mix towards lower cost funding sources. Processing and servicing costs was $67 million, up 100% year-over-year and 25% Q-o-Q.
The increase was primarily due to increase in system usage fees and the cloud service fees to process a higher number of concurrent trades. As a result, our total gross profit was HKD 1.64 billion, an increase of 92% from HKD 764 million in the third quarter of 2020. Gross margin was 85% as compared to 81% in the third quarter of 2020. Our total operating expenses was HKD 764 million, up 177% year-over-year and 18% quarter-over-quarter. We continue to invest in international markets, and we estimate over 30% of our operating costs were devoted to overseas markets. R&D expenses was HKD 224 million, up 50% year-over-year and 29% quarter-over-quarter.
We continue to add headcounts to support new product offerings, U.S. clearing capabilities and the product customization for international markets. Approximately 40% of our R&D personnel were dedicated to our moomoo product nowadays. Selling and marketing expenses were HKD 403 million, up 263% year-over-year and 7% quarter-over-quarter. The rising spending was driven by higher branding and marketing expenses in Singapore and in the U.S. in particular. In the third quarter, approximately 40% of our selling and marketing expenses were spent on overseas client acquisition. G&A expenses were HKD 137 million, an increase of 122% year-over-year and 42% quarter-over-quarter. The increase was primarily due to increase in headcount for G&A personnel.
As a result, our non-GAAP adjusted net income increased by 58% year-over-year and 17% Q-o-Q to $646 million. The non-GAAP net margin for the quarter was 37%. That concludes our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead. Thank you.
The first question is from the line of Bella Zhang of TH Capital. Please go ahead.
Hi, management. Thanks for taking my question. I have two. The two mainly are about the regulation impact, actually. The first one is, you know, the new draft from Cyberspace Administration of China requires a cybersecurity assessment for listing in Hong Kong, well, especially for tech companies with data over 1 million users. So my question is, do you actually see any negative impact on your IPO pipeline because of the new regulation from CAC? And should we expect the IPO pace in fourth quarter and next year will be slowed down a lot? The second one is, in terms of your customer acquisition. There are some concerns about the legality of offshore trading by online brokers. Just wondering if management can shed some light on the impact under government regulation.
Well, especially for customer acquisition in mainland China, you know, people may feel hesitant to open new accounts due to the regulatory concerns. Well, additionally, will that affect your customer acquisition strategy? Let me translate myself.
谢谢管理层。我主要有两个问题，都是关于监管层面的影响。第一个是关于十一月中旬中国国家网信办发布的网络数据安全管理条例的征求意见稿当中，有对香港上市的公司进行网络安全评估的问题，那这个对公司上市的pipeline的预期会有影响吗？是不是我们应该认为四季度和明年的上市节奏都会有一个比较大幅的减缓。另外一个是关于监管对获客方面的影响，由于如果市场认为公司的业务合规性存在一定的担忧的话，那是不是会导致他们会犹豫在富途开户，那大陆地区新的获客是不是会因为政策的影响而导致进程变慢，而公司的获客策略是否会因此而发生改变？谢谢。
Thank you. I will take the second question first, I will leave the first question to my colleague Leaf. In terms of the China regulations, I think we are not in the best position to prejudge what the regulator will do. I think so far, you know the impact to our client positions in the Greater China areas is manageable. I can share a little bit more colors which I think may be helpful for analysts and also the investors to gauge how the negative impacts on the recent headline news. You know because of that what's the implication to our client positions across the board. Definitely we see certain asset outflows among clients in the Greater China areas amid concerns over media reports.
Overall speaking, we think the impact is still very short term and manageable. From mid or from the mid-October to mid-November, the net asset outflows account for less than 2% of our total client assets. The situation starts to back to normal from last week. In my personal thought, I think the worst is already behind us. Of course, the market volatility alongside with seasonality effect in Q4, together with this, you know headline news definitely enhance attrition rates for existing paying clients and also create some challenges for new client acquisition across the board in the near term. We think overall speaking, the situation is still within our control. Thank you.
第二个问题我来回答一下，就是那么目前的话，就是富途的业务情况其实跟往常一样，那富途所从事的业务其实并不是一个什么新鲜的事物，在富途出现以前就已经存在很多年，而且富途的整个的业务规模其实在行业当中的占比也不是那么高。另外就是富途在业务模式服务方式上，在香港其他所有为大陆客户提供境外证券交易服务的外资、港资、中资券商以及银行等金融机构完全一样，也都遵循着相同的法律法规和监管要求。如果要说富途有什么不一样，那么富途相对于我们的同行，在科技上的投入和创新的比重会更大，对于客户体验会更加重视。那我们也都始终积极拥抱监管，并且对于业务的合规保持着高标准和严要求。同时我们也始终保持着积极开放的沟通态度，欢迎监管机构给予我们和行业更多的指导。未来如果有新的监管指引，我们也会在第一时间去进行遵循。那么作为上市公司，我们也会针对新的情况和信息去做及时的披露。谢谢。请Daniel帮我翻译一下。
Yeah, we are business as usual here at Futu. Our business model is nothing new. Before our inception, this business has been there for years. Our business size is small relative to the whole industry. Our business model and how we serve our clients are identical to a lot of the other international Hong Kong and China brokers and banks in Hong Kong that help Chinese-based clients access overseas trading. We are operating under the same set of laws and regulations.
If you have to ask, there are the differences in comparison to our peers, we invest more heavily into technology and innovation, and we attach more importance to user experience. We have always been embracing the regulations and have a very high set of standards for operational compliance. We are actively and transparently communicating with the regulators, and we anticipate and welcome more guidance from the regulators to both us and the industry as a whole. If there are new regulatory guidances coming out, I think we will abide by these regulations as soon as possible.
As a listed company, we will timely update any new information available to us. Yeah, also to your question about whether the IPO pipeline could be influenced. We feel like the IPO pipeline is more dependent on the overall market environment than on the cybersecurity kind of investigations. I think how the IPO pipeline will turn out in Hong Kong in the next couple of quarters will be largely dependent on the overall direction of the market.
I just want to point out that historically, we achieved like high single digit of our revenue through IPO related businesses, including IPO subscription fees and, the IPO margin financing income. We don't think it's a material impact on our business, and we have a lot more levers to pull to further our growth. As we mentioned in our opening remarks, we think there is still a huge under-penetrated population in Hong Kong that we could tap into, and a lot of the international markets that we have entered, including Singapore and the U.S., offer significant runways for growth. Thank you.
Thank you. Our next question is from the line of Katherine Liu of Morgan Stanley. Please go ahead.
谢谢管理层给我这个提问的机会，我是Morgan Stanley的Katherine Liu，我有两个问题想请教一下。第一个的话想请问管理层，可不可以帮忙我们分析一下，我们应该如何看待富途海外的这个市场空间。第二个问题的话，就是想请问，可不可以给管理层一些指导，比如说第四季度到目前为止的话，公司各项运营的数据趋势如何，包括比如说像这个换手率啊，包括客户资产啊这些东西。I'll translate for myself. Thank you very much for giving me this opportunity to ask questions. Just two questions from me. First, just wondering, the management help us to analyze how to view the overseas market growth opportunity or the room for growth, for Futu. The second question is, can the company give us some guidance in terms of the fourth quarter to date, operational data trend such as the velocity, clients' assets, etc. Thank you.
Okay, sure. Katherine, let me just supplement, you know, the answer I mentioned before for your second question. Still I will leave the first question to Leaf. I think you know, in terms of, you know, client activities we see investor sentiment is warming up in the fourth quarter. Of course, in fourth quarter, we face some long holidays such as national holiday and also Christmas. If we do take out the holiday effect in Q4, we expect the overall trading volume may be similar to Q3 based on the current run rate. In terms of client assets, as I mentioned before, we definitely got some, you know, negative asset outflows because of the headline news recently. But the situation starts to get back to normal since last week.
In particular, we see very encouraging signals in our overseas markets, such as Singapore. In our opening remarks, we've mentioned that our average client assets in Singapore already jumped 11% Q-on-Q basis. I do think on top of that, we will continue to see on a cohort and also on an absolute basis in Singapore market, we will still see another at least 15% increase Q-on-Q on top of the growth what we achieved in Q3. In terms of our wealth management products, so far our assets on wealth management segment has demonstrated a strong resilience, and we do expect more product offering to be launched in Q4, which may further drive our AUM to continue to go up. Thank you.
谢谢Katherine，我来回答你的第一个问题。那么截止到三季度的话，富途香港的用户数是累计有222万，那么占到了香港18岁以上人口的32%。也就是说富途香港注册用户数占到了香港成年人口的三分之一。那么富途在20到29岁的香港年轻人群体当中的客户渗透率已经达到了五分之一。那么在香港市场，我们维持在年轻群体中的一个高渗透率的同时，还会向目前富途渗透率还比较低的客群进行重点渗透，比如在香港的中年人群体和女性群体等等。另外就是我们的新加坡市场。新加坡的成年人口大概是490万，那么假设其中30%有证券经纪账户，那么这里大概可以粗略地测算出来，大致有将近150万的零售投资者。那么从富途目前的渗透率来看的话，还有非常大的一个提升空间。另外就是在未来我们的国际化战略当中，一方面我们希望以新加坡为中心辐射到其他的东南亚国家。那么和新加坡的情况相似，其他东南亚国家原有的传统券商服务的技术能力和用户体验都相对滞后。那么目前粗略估算东南亚的华人有3,300多万人，那么估计互联网的华人用户大约是2,200万人。那么从目前富途用户的IP访问的IP地址来看，富途的品牌在很多东南亚国家已经积累了一定的认知度。另外一方面就是我们认为美国的市场还有进一步的成长空间。我们认为moomoo平衡了友好的用户体验和深度的产品功能，可以很好地填补美国现有互联网券商和传统券商之间的市场空白。那第三季度美国市场竞争客户我们环比有着一个不错的增长，也体现了我们在美国获客渠道方面的一些探索得到的一些初步的成效。那么未来我们也会根据市场动态去调整这里的获客策略。
以帮助我们能够更加精准地去触达目标人群。谢谢。
Thank you. Our next question is from the line of Zoey Zong of Jefferies. Please go ahead.
我这边也是有两个问题想请教一下。第一个是我们Q3新增的这个166K有资产客户中，有多少是来自香港、新加坡、大陆和美国市场？然后就是117万总的有资产客户中，这个比例大概是怎么样的？然后我的第二个问题是，Q3我们倒算下来，这个获客成本大概在HKD 2,400每客，包括我们看Q4或者明年的话，我们的获客成本有没有一个大概的指引？我自己翻译一下。Thanks management for taking my questions.
I have two questions. First we noted that company newly added 166,000 paying clients in Q3. Could you please provide some color about the user mix, like how much came from Hong Kong, Singapore, Mainland and the U.S.? Could you please also share the mix for the 1.2 million total paying accounts? My second question is regarding customer acquisition costs. The implied customer acquisition cost was around HKD 2,400 in Q3. How should we expect this in next year? Thank you.
Sure. I will take both questions. I think number one, the breakdown for the new client acquired in Q3. In general, Greater China areas accounts for roughly 60% of the new paying clients acquired for the quarter. The remaining forty percent, Hong Kong-Singapore roughly accounts for 28%, and the remaining 11% belongs to the U.S. For your second question in terms of the marketing spending, I think what we focus internally is more, you know, the ARPU versus CAC ratio. Definitely you see the CAC numbers in the third quarter increase from a Q-on-Q basis.
Mainly I think it's due to you know, because the market conditions, which let our attrition rate temporarily go higher. Therefore, you know, on average basis, you can see the CAC number slightly go up from a Q-on-Q basis. It is very difficult for us to give you a quantitative guidance for for the CAC number, which have heavily been impacted by the market conditions, as you can imagine. But I think in our conviction, user engagement is always the most important things we care, because you know, the transition cost for the paying users to other competitors or to other channels take very high time thresholds.
Therefore, we still will more focus on the growth. Definitely we will, you know, on a close basis, monitor our unit economics to make it more justifiable. For instance, if we look at our Singapore numbers, I think back to second quarter this year, if we use the CAC number and also ARPU number at that time, our, you know, payback period for our Singapore paying clients is around 2.5 years. But now, you can see after one quarter, our average client asset cohort already increased by 11% and we do expect there will be another 15% jump, in the fourth quarter.
You know, on a more forward-looking perspective, the unit economics will become more and more make sense after we further gain the trust and the confidence from the existing users who will inject more fundings into their accounts. Also at the same time we will provide more product offerings to enhance our take rate. Thank you.
Very helpful. Thank you.
Thank you. The next question is from the line of Charles Zhou of Credit Suisse. Please go ahead.
我是瑞信的分析师周成，前两个问题管理层已经回答了，想请再澄清一下，刚才您谈到了2%的一个outflow，具体指的是什么？我没有太听清楚。然后第二，刚才管理层也谈到了，就是我们这个开户流程到风险管理和这个禁制调查是和银行也是一样的是吗？这个我想再确认一下，包括商业银行和私人银行开个账户，我们这个流程和风控是一样的是吗？这是我刚刚要问的两个问题。此外我还有两个问题，第一是关于竞争，第二是关于我们的股票回购。竞争呢，就是我们也注意到一些竞争对手最近采用一些零佣金的策略，所以我知道我们公司没有采用，不知道我们有没有一些其他的方法，比如通过一些优惠券，或者别的方法，也是采取一些类似于零佣金的策略。然后对于这个C端来看，未来这个走势我不知道管理层是怎么看的，包括香港和新加坡两个市场，然后我们如何去实现客户的这样一个AUM的monetization。然后第二就是我们宣布了股票回购，不知道我们现在已经做了多少了，然后这个价格是怎么样，能不能分享一下。
The first question I just want to clarify the 2% you just mentioned about outflows, what do you mean by that? You just mentioned Greater China. Which period can you maybe just give us a little more color on that? Second question, you also mentioned that the, you know, the onboarding process, the due diligence and also the risk management is same as banks. So do you mean that same as commercial bank or private bank for a securities brokerage account? I also have two more questions here. The first one is, we understand Futu has not adopted a zero commission policy like many competitors do. So we have seen some promotion that offer zero commission trading, either by using a promotion code at account opening or redeeming coupons and afterwards.
How do we think about the fee rate going forward in Hong Kong, Singapore as well as the monetization of client AUM? The last one is also about the share buyback, so can you maybe give us just a little more color about your share buyback so far, say at what price and also like how many shares have you already bought back? Thank you.
Sure. Charles, you asked four question. Let me just take number one and number four first. Still I will leave the second question and also the third question to Leaf. I think in terms of the client asset outflows, as I mentioned before, I just want to share some latest colors in terms of the implications from the recent headline news. It is very difficult to attribute our client asset outflows because of whether because of the recent headline news or because of other reasons. But just to give you some very simple statistics, if we look back the past one month, we do have some net asset outflow.
I think the amount is roughly in the range of 1%-2% of our total client asset balance at the end of the third quarter. So just give you some sense in terms of the number. Also for the share buyback. For the share buyback, I think definitely we will this is a certain month share buyback programs. Also according to the SEC regulations, actually we cannot conduct any share buyback during the result, you know, the blackout period. Therefore, so far we have not conduct any share buyback yet. Thank you.
关于这个计算的，Daniel来跟我们分析一下。
Sure. Yeah, as we mentioned earlier, we abide by the same set of regulations and laws in terms of our account opening procedures, KYC and AML etc. We believe that what we do is in line with what other brokers and banks in Hong Kong they currently do. We don't think there are differences.
对，然后关于竞争这里我来讲一下，因为首先我们认为香港的市场的竞争环境其实没有很明显的变化，无论是基于价格战的各种做法，其实都已经持续了很多年。那正如我在前面讲的，就是说一个成功的券商，其实它离不开令人信赖的品牌，极致的用户体验，规范的交易系统，强劲的资本保障，以及与商业银行的一个紧密关系。那么这一些其实都是需要时间来培养和沉淀的。那么富途经过这么多年，我们其实是形成了自己的一个独特的竞争优势。另外就是，我们也都关注到，其实港股的主要的交易成本其实并不在于所谓的佣金费率，而是在于印花税。所以这里的话，对于整体的交易成本其实的影响不是那么大，所以我不认为说单纯的价格战会带来一个大的影响。那么新的竞争者，如果他们只想通过降价来赢得一些竞争，那么他们可能因为一些无法改善的财务状况，给自己带来一些其他的运营问题。
Thank you.
We don't think the competitive environment has changed much in the Hong Kong market. In fact, this price war between our competitors has been happening for a number of years. As I mentioned in our opening remark, we believe that the key success factors of a broker include a trustworthy brand, superior user experience, this end-to-end proprietary trading infrastructure, a very strong capital base, and close relationships with commercial banks. These really all take time to develop, and Futu has developed strong competitive strengths in these areas. We also understand that the majority of the trading costs for Hong Kong stocks is coming from stamp duty, which is currently three basis points.
We currently charge a three basis points commission, which is relatively low in comparison to the stamp duty cost. So we don't feel like the price war has affected much, and we don't have plans to change our pricing. If pricing is the only lever our competitors can pull when they're entering into the market, if they don't see financial or operational results in the short- term, they may feel a lot of pressure.
Okay. Thank you.
Thank you. We have now reached the end of our question-and-answer session, and I'd like to hand the conference back to Daniel Yuan for closing remarks. Please continue.
That concludes our call today. On behalf of 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 representative. Thank you, and goodbye.
Thank you. That concludes our conference for today and thank you for participating. You may now all disconnect.