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Can FUTU's Expanding Margins Fuel Profitability in the Long Haul?

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Key Takeaways

  • {\"0\":\"FUTU\'s operating margin rose 520 bps sequentially and 1,570 bps y/y in 2Q25.\",\"1\":\"Revenues jumped 17% sequentially and 70% annually, driven by client growth and trading activity.\",\"2\":\"The net income margin expanded 210 bps sequentially and 980 bps y/y in the June quarter.\"}

Futu Holdings Limited (FUTU - Free Report) achieved a strong sequential increase of 520 basis points (bps) in its operating margin in the second quarter of 2025. The same margin widened by 1,570 bps from the previous year. This reflects a consistent trend, as we have seen an upward trajectory in this metric over the past five quarters. This highlights FUTU’s strategy to boost its top line while employing a prudent cost control strategy.

Factors such as an upsurge in funded accounts fueled by rising overseas client penetration, heightened trading volumes supported by active brokerage, and a more than 98% client retention rate drove revenues by 17% sequentially and 70% year over year in the second quarter of 2025. While higher revenues can be a result of higher expenditure, that is not the case here.

FUTU’s robust cost management strategy, which includes optimized marketing expenses due to lower customer acquisition costs (CAC), investments in AI and automation to boost operating efficiency, and localized market strategies, resulted in operating expenses increasing 2.8% sequentially and 20.6% year over year in the June-end quarter. A slower expense growth rate while achieving significantly higher top-line targets highlights FUTU’s strong operating leverage.

The efficacy of Futu Holdings’ optimized cost strategy widened the net income margin as well. In the June-end quarter, the net income margin expanded 210 bps sequentially and 980 bps year over year. Similar to the operating margin, the net income margin followed an uptrend over the past five quarters.

The long-term game of profitability depends on strong operational efficiency and strategic growth. The company already has a loyal customer base, as evidenced by its retention rates. Having said that, FUTU’s chief financial officer, Yu Chen, stated that management is confident in achieving its annual 800,000 new fund accounts target, which will significantly boost the top line.

Investments made in AI and automation should be a key driver in future profitability. These tech advancements are crucial for maintaining a lower CAC, supporting scalability. The anticipated rise in revenues, coupled with stringent cost control, will provide the company with substantial operating leverage to maintain and grow its profitability.

FUTU’s Price Performance, Valuation & Estimates

The stock has skyrocketed 165.4% in the past year, significantly outperforming its competitors, Yext (YEXT - Free Report) , Xperi Inc. (XPER - Free Report) , and the industry as a whole. The industry and Yext have rallied 71.9% and 35.6% respectively, while Xperi has declined 31.7%.

1-Year Price Performance

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

From a valuation standpoint, FUTU trades at a forward price-to-earnings ratio of 19.52, lower than the industry’s 29.09. Yext and Xperi trade at 17.46 and 6.94, respectively.

P/E – F12M

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

FUTU carries a Value Score of B. Yext and Xperi carry C and B, respectively.

The Zacks Consensus Estimate for FUTU’s earnings for 2025 and 2026 has increased 15.9% and 13.2%, respectively, over the past 60 days. 

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

FUTU currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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