Business

With profits more than doubling in the first quarter of 2021, XP speeds up its banking initiative

XP's top executives said that the company has "just started." First, it aimed at the top of the pyramid of investors in Brazil. Now, it intends to reach the bottom of that pyramid

XP
Photo: Screenshot/XP
  • XP has strong operating leverage and that basically, all business units are contributing to the organization’s growth;
  • In February, the company launched its credit card, its first major banking retail product. In only one month, the product generated more than BRL 550 million in TPV for XP. The next step will be offering digital accounts to customers by mid-year.

Brazil’s largest independent brokerage, XP, has registered a 104% growth in net income in the first quarter of 2021 over the same period last year, to BRL 846 million, due to strong growth in retail revenue, operations leverage in SG&A (which can be translated into good management of selling and administration costs), and lower effective tax rates. At the same time, the company almost doubled its active customer base to 3 million, while assets under its custody surged 96% to BRL 715 billion.

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Explaining its strategy as straightforward as possible to analysts this Tuesday evening, XP’s top executives said that the company has “just started.” First, it aimed at the top of the pyramid of investors in Brazil. Now, gradually and taking advantage of its size to maintain sustainable pricing, it intends to reach the bottom of the pyramid.

“Brazil’s investment market revenue pull is around BRL 700 billion. That means that today, we have less than 1.5% of this pull, so we have a lot of room to grow,” said XP’s partner and CFO, Bruno Constantino. He stressed that XP has strong operating leverage and that basically, all business units are contributing to the organization’s growth. “I don’t see competition reducing in the future. On the contrary, we have to keep moving and faster. [To do that] we expect to keep reinvesting 100% of our results in the company,” stressed Constantino, adding that the company is hiring 100 people per month in order to do that, and it has to accelerate its pace in the next quarter.

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Among the XP’s initiatives, Constantino highlighted the international funds that the company has brought to the Brazilian market and its banking strategy. “We brought some global players, some of them exclusively, to the Brazilian market. We traded BRL 20 billion through over 120 funds, six times over the last year,” explained XP’s CFO.

In March, the company launched its credit card, its first major banking retail product. In only one month, the product generated more than BRL 550 million in TPV for XP. The next step will be offering digital accounts to customers by mid-year.

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Another highlight is the results concerning pension and insurance products: BRL 3.6 billion of net income coming from XP’s own products, something that Constantino said accounted for 88% of the transfers made in this business in Brazil in the first quarter. “The customer here has a different profile than investment, it has slower growth, but it is a product that is strategic to our goal of building a long relationship with our clients, “said Constantino.

In a letter to investors, founder and Chief Executive Officer Guilherme Benchimol said XP is planning to launch financial services for small and large companies this year.

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