After the Credit Suisse crisis dragged down financial stocks across the board, investors were hoping that the latest earnings from Futu Holdings, Jefferies Financial Group and Paychex would give the fintech theme a lift. The three companies reported across Tuesday and Wednesday.
- Futu Holdings beat both top- and bottom-line estimates; Jefferies’ earnings and revenue tumbled.
- Despite headwinds, Jefferies expects to deliver better results once normality has returned to capital markets.
- The S&P 500 Ex-Financials ETF, which holds Paychex, is up 7% year-to-date.
Futu Holdings [FUTU], Jefferies Financial Group [JEF] and Paychex [PAYX] released their latest earnings reports this week against a backdrop of concerns about global financial stability.
Hong Kong-based wealth management platform Futu reported big top- and bottom-line jumps for the three months to the end of December. Gross profit was up 39.9% from the fourth quarter (Q4) of 2021, to HK$1.9bn, while net income soared 92.2% to HK$958.7m. Revenue increased 42.3% year-over-year to HK$2.3bn.
New York-based investment bank and financial services provider Jefferies reported a 24% year-over-year fall in revenue, to $1.3bn, for the three months to the end of February 2023. Net income slumped 61% to $129.3m. EPS fell 56% from Q1 2022, to $0.54 per share.
Payroll tech firm Paychex’s Q3 2023 revenue was up 8% year-over-year to $1.4bn. Net income rose 9% to $467.4m for the three months to the end of February, while adjusted earnings were up 12%, to $1.29 per share.
Futu’s ADR shares declined 6.3% on Tuesday after the company reported pre-market, but regained the losses the following day, when it closed up 21.5% year-to-date. The Jefferies share price and the Paychex share price were both trending upwards after reporting earnings, and are down 4.2% and up 1.1% year-to-date, respectively.
Fintechs show resilience
One possible explanation for the sell-off in the Futu share price is that trading volumes fell between October and December amid macroeconomic headwinds.
Volumes were down 10.9% year-over-year to HK$1.1trn, although flat sequentially. While Hong Kong equity trading volumes were up 30.7% from the previous quarter to HK$396.6bn, US stock trading declined 10.2%, to HK$675.3bn. This was “due to a directionless market and weak sentiments around key technology names, partially offset by resilient trading turnover in leveraged and inverse ETFs,” Futu CEO Leaf Hua Li explained in his statement.
Although Jefferies reported an overall fall in revenue, its investment banking business proved resilient, and its capital markets business brought in $639.4m, up 33.8% sequentially.
“Despite the significant decline in M&A activity and a continued lull in the IPO and leveraged finance markets, our investment banking business continues to build on our momentum and growing market position,” Jefferies CEO Richard Handler and president Brian Friedman said in a shared statement.
Paychex CEO John Gibson said the company benefited from small businesses demonstrating “remarkable” resilience in the face of “a constantly changing labour market, inflation and increasing regulations and interest rates going into calendar year 2023”.
Macro headwinds to remain strong
While Futu hasn’t offered any guidance, investors will be paying close attention to its Q1 2023 numbers when they’re reported. On 30 December last year, the China Securities Regulatory Commission ordered Futu to stop opening new accounts for mainland investors, on the grounds that the brokerage has been conducting unlawful securities activities. The stock plunged 31% on the day of the news.
Chief financial officer Arthur Chen said on the Q4 2022 earnings call that weak sentiment meant US customers have been reluctant to enter the market.
At Jefferies, the return on tangible equity fell from 16.2% in Q1 2022 to 7.1% in Q1 2023. This was lower than the company would have liked, but “reasonable” considering the macro headwinds.
“We remain optimistic about our ability to deliver much better results when the capital markets return to some version of normalcy,” Handler and Friedman said in their statement.
Paychex expects adjusted EPS for the full fiscal year to the end of May to grow between 13% and 14%, revised upwards from a previous range of 12% to 14%.
Funds in focus: S&P 500 Ex-Financials ETF
Paychex has a minimal weighting of 0.13% in the S&P 500 Ex-Financials ETF [SPXN] as of 31 December. The fund is up 7% year-to-date and up 3.8% in the past month.
Jefferies is held by the Invesco DWA Financial Momentum ETF [PFI], with a weighting of 1.26% as of Wednesday. The fund is down 3.1% year-to-date and down 8.5% in the past month due to its heavy exposure to banks and brokerages.
Futu is held by the Amplify Emerging Markets FinTech ETF [EMFQ] and has been allocated 2.90% of the portfolio as of Thursday. The fund is up 5% year-to-date, but down 1.8% in the past month.
The stock also makes up 2.11% of the Principal Millennial Global Growth ETF [GENY] portfolio as of Wednesday. The fund is up 8.9% year-to-date, though down 0.5% in the past month.
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