Freedom Holding Corp.: Building a Digital Empire Beyond Brokerage (FRHC) - FRHC Stock Research Report

## Executive Summary / Key Takeaways * Freedom Holding Corp. is rapidly transforming from a brokerage-centric firm into a diversified digital fintech ecosystem, leveraging its strong base in Kazakhstan to expand across Central Asia, Europe, and the U.S. * Fiscal Year 2025 results show robust top-line growth (23% increase in total revenue to $2.05 billion), driven by significant expansion in the Insurance (134% revenue growth) and Brokerage (15% revenue growth) segments, alongside substantial investment in new ventures like telecommunications and media. * The company's proprietary technology stack, anchored by the Freedom SuperApp and Tradernet platform, provides a key competitive advantage through integrated services, data-driven efficiency (e.g., digital mortgage disbursement under 24 hours), and enhanced customer engagement. * While profitability declined in FY2025 (net income down 77% to $84.5 million) due to unrealized trading losses on Kazakhstan bonds, increased operating expenses from expansion, and higher credit loss provisions, these impacts are partially linked to strategic investments and temporary market fluctuations. * Key risks include intense competition across diverse segments, potential losses in new telecom/media ventures, geopolitical uncertainties (especially related to Kazakhstan's economy and sanctions), and the challenges of managing rapid growth and integrating acquisitions. ## The Foundation: From Brokerage Roots to a Digital Ecosystem Vision Freedom Holding Corp. (NASDAQ: FRHC) traces its origins back to a blend of Kazakhstani energy and brokerage ventures, fundamentally reshaped by Timur Turlov's vision starting in 2015. What began as a mission to democratize access to international capital markets for retail investors has rapidly evolved into a multinational diversified financial services holding company. Key acquisitions, such as Kassa Nova Bank (now Freedom Bank KZ) in 2020 and two insurance companies in 2022, alongside its U.S. brokerage entry via Prime Executions, have broadened its scope well beyond its initial brokerage focus. The divestiture of Russian operations in 2023 marked a significant strategic shift, refocusing the company's geographic priorities. At the heart of FRHC's strategy is the ambition to build a comprehensive digital fintech ecosystem. This isn't merely about offering disparate services; it's about creating an integrated platform where brokerage, banking, insurance, payments, and lifestyle services seamlessly interact through a single user interface, primarily the Freedom SuperApp. This ecosystem approach, anchored by proprietary technology, aims to deepen customer engagement, reduce operational friction, and leverage data for personalized offerings and enhanced efficiency. The company's primary market remains Kazakhstan, but its strategic sights are set on regional and global expansion, particularly across Central Asia, the Caucasus, and into Europe and North America. The financial services industry is characterized by intense competition, rapid technological change, and evolving regulatory landscapes. FRHC competes with a diverse array of players, from large international banks and brokerages like Charles Schwab (TICKER:SCHW) and Interactive Brokers (TICKER:IBKR) to regional powerhouses like Halyk Bank (TICKER:HSBK) and Kaspi Bank (TICKER:KSPI) in Kazakhstan, and digital-first brokers like eToro and Robinhood (TICKER:HOOD) in Europe and the U.S. While many competitors boast greater scale, capitalization, and brand recognition, FRHC seeks to differentiate itself through its integrated digital ecosystem, deep regional market expertise, and a focus on providing access to global markets, particularly for emerging market investors. Its expansion into new areas like telecommunications and media in Kazakhstan represents a strategic move to diversify revenue streams and further integrate its ecosystem, though it introduces competition from established players like Kazakhtelecom (TICKER:KZTK) and Beeline Kazakhstan. ## Technological Edge: The Engine of the Ecosystem FRHC's competitive positioning is significantly underpinned by its proprietary technology stack, notably the Tradernet trading platform and the Freedom SuperApp, built on a proprietary cloud stack. This technology is designed not just for functionality but for seamless integration and efficiency across the ecosystem. The Tradernet platform serves as the flagship online trading interface, offering access to a wide array of instruments across major global exchanges. Its advanced order routing system aims to facilitate trades at competitive prices. Crucially, the back-end infrastructure and back-office solutions automate many administrative processes, handling high transaction volumes securely and efficiently. The Freedom SuperApp is positioned as the front-end for retail and SME services, providing a single point of access to banking, payments, credit, investment, card management, and lifestyle services. Built on a microservices architecture with open APIs, it integrates with over thirty government and commercial data sources. This integration enables significant operational efficiencies; for instance, the digital mortgage product leverages automated data retrieval from state registries and an Automated Valuation Model, reducing the average time from application to disbursement to under 24 hours, a stark contrast to traditional processes taking several weeks. Similarly, the SME digital loan process uses open banking and tax authority APIs to approve and load working capital lines onto a corporate card within one business day. The company is actively incorporating big data analytics and predictive AI into its operations. By ingesting data from across the ecosystem, AI models are used to personalize products, adjust credit limits, rank cross-sell offers, and screen payments for fraud and sanctions within milliseconds. This data-driven approach, combined with integration with government services for prefilled forms and confirmed collateral ownership, significantly reduces manual compliance processing times (reportedly from up to two days to approximately eight minutes), enhancing efficiency and lowering acquisition costs. FRHC's R&D efforts extend to new ventures like telecommunications and media. The planned Freedom Telecom network infrastructure, including a backbone network, is expected to evolve into a platform for future mobile operations, providing additional distribution capacity for digital services and generating new data streams for AI models. The Freedom Media platform aims to build a regional streaming service. While specific quantifiable targets for these new tech initiatives are still developing, the strategic intent is clear: to expand the addressable market, deepen engagement, and further reduce the unit cost of serving each customer by integrating these services into the core ecosystem. The company's ability to continuously develop and integrate technology is critical to maintaining its competitive moat against both traditional and digital-first rivals. ## Performance and Investments: Growth Amidst Transition Freedom Holding Corp.'s financial performance in the fiscal year ended March 31, 2025, reflects a period of significant top-line growth alongside substantial investments and market-related impacts. Total revenue, net, increased by 23% to $2.05 billion, up from $1.67 billion in fiscal 2024. This growth was broadly distributed across several key areas. Insurance underwriting income saw the most dramatic increase, surging by 134% to $617.6 million, driven by the expansion of pension annuity and accident insurance classes and a significant rise in the number of insurance customers to 1.17 million. The Brokerage segment also demonstrated solid growth, with total revenue increasing by 15% to $717.3 million, primarily fueled by a 29% rise in fee and commission income from brokerage services, reflecting the substantial increase in retail brokerage customers to 683,000. Interest income grew by 4% to $864.5 million, mainly due to increased margin loan usage by customers and the expansion of Freedom Bank KZ's loan portfolio.

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However, profitability saw a notable decline. Net income for fiscal 2025 was $84.5 million, a 77% decrease from $375.0 million in fiscal 2024. This was primarily attributable to a net loss on trading securities of $57.8 million, a significant swing from a $133.9 million gain in the prior year. This loss was largely driven by unrealized losses on Kazakhstan sovereign bonds held in the proprietary portfolio, stemming from a temporary decrease in market prices following an increase in Kazakhstan's base interest rate in March 2025.

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Expenses also increased significantly, reflecting the company's growth and investment strategy. Total expense rose by 57% to $1.94 billion. Fee and commission expense increased by 124% to $346.1 million, mainly due to higher agency fees associated with increased insurance product sales outsourced to external agents. Payroll and bonuses grew by 59% to $288.2 million, driven by workforce expansion and increased compensation. Advertising and sponsorship expense saw a massive 225% increase to $124.6 million, reflecting intensified marketing efforts and significant sponsorship contributions. General and administrative expenses rose by 34% to $162.5 million due to overall operational growth and new subsidiaries. Furthermore, the allowance for expected credit losses increased by 194% to $62.4 million, primarily due to higher provisions for various loan types, influenced by macroeconomic conditions and foreign currency depreciation impacting estimated default probabilities. Segment analysis reveals varied performance. While Brokerage remained highly profitable with income before tax of $376.6 million, the Banking segment reported a loss before income tax of $94.7 million in fiscal 2025, a significant shift from a $126.7 million profit in fiscal 2024. This banking decline was influenced by the trading loss, lower foreign exchange gains, and increased interest expenses and credit loss provisions. The Insurance segment, despite its strong revenue growth, saw income before tax decrease to $22.1 million from $42.5 million, impacted by the surge in claims and agency expenses. The "Other" segment, encompassing new ventures like telecom and media, reported a substantial loss before income tax of $191.1 million, more than doubling the prior year's loss, highlighting the significant investment phase in these areas. Liquidity is managed through a combination of cash on hand ($837.3 million), restricted cash ($807.5 million), cash from operations ($1.68 billion inflow in FY2025), trading returns, and borrowings. The company relies significantly on customer deposits ($4.3 billion) and securities repurchase agreements ($1.42 billion) for funding. Capital expenditures, particularly for the telecom business and the new Cyprus office building, are substantial and financed through a mix of internal funds and debt, including recent bond issuances totaling $400 million by Freedom SPC. The company maintains regulatory capital levels well above minimum requirements across its regulated subsidiaries, with aggregate excess regulatory capital of $1.18 billion as of March 31, 2025.

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## Outlook and Risks Looking ahead, FRHC's outlook is tied to the successful execution of its digital ecosystem strategy and expansion initiatives. Management anticipates continued investment in the new telecommunications and media businesses in Kazakhstan, projecting losses in these segments for the near term, with profitability for Freedom Media forecasted from calendar year 2027 onwards. The inclusion in the Russell 3000 Index, effective June 2025, is expected to enhance visibility and potentially improve stock liquidity, though the magnitude is uncertain. The company's ability to continue growing its customer base, particularly within the integrated SuperApp ecosystem, is a key driver for future revenue and efficiency gains. However, the path forward is not without significant risks. Geopolitical instability, particularly stemming from the Russia-Ukraine conflict and its impact on the global and Kazakhstan economies, poses ongoing challenges. The depreciation of the Kazakhstan tenge, vulnerability to oil price fluctuations, and potential impacts from changing U.S. trade policies (such as the signaled 27% tariff on Kazakhstan exports) could adversely affect the company's financial performance and customer base. Regulatory risks are heightened by operating in numerous jurisdictions with evolving and sometimes conflicting rules, including complex sanctions compliance and anti-money laundering requirements. The company's reliance on a single non-U.S. market maker customer for a significant portion of brokerage revenue presents a concentration risk. Furthermore, the substantial investments in new, unproven business areas like telecom and media carry the risk that these ventures may not achieve profitability as planned, impacting consolidated results. Managing rapid growth, integrating acquisitions, and maintaining effective internal controls and cybersecurity defenses across a complex, geographically diverse organization remain critical operational challenges. ## Conclusion Freedom Holding Corp. is undergoing a significant transformation, leveraging its brokerage foundation and regional strength in Kazakhstan to build a comprehensive digital financial ecosystem. Fiscal Year 2025 results underscore the company's ability to drive top-line growth, particularly in its Insurance and Brokerage segments, while simultaneously investing heavily in new strategic areas like telecommunications and media. The core investment thesis rests on the potential for this integrated digital platform, powered by proprietary technology like the SuperApp and Tradernet, to capture market share, enhance operational efficiency, and deepen customer relationships across emerging markets. While the recent decline in net income highlights the financial impacts of market volatility on its proprietary trading portfolio and the substantial costs associated with its ambitious expansion, these factors are intertwined with the long-term growth strategy. The company's ability to navigate intense competition, manage geopolitical and regulatory complexities, and successfully execute its technology roadmap will be crucial. For investors, FRHC represents a play on the growth of digital financial services in emerging markets, underpinned by a unique integrated ecosystem approach, but accompanied by the inherent risks of rapid expansion and exposure to volatile regional dynamics.