XP Inc. (XP): The Charles Schwab of Brazil
Is Growth in XP Moderating?
XP is a leading, technology-driven platform and trusted provider of low-fee financial products and services in Brazil. The company’s mission is to disintermediate the legacy model of traditional financial institutions by:
Educating new classes of investors
Democratizing access to a wider range of financial services
Developing new financial products and technology applications to empower clients
The company operates in a similar way to Charles Schwab but in Brazil. XP provides (1) financial advisory services all types of retail and institutional clients in Brazil and (2) an open financial product platform for more than 800 investment products across various asset classes.
XP was founded in 2001 and began its real growth trajectory in 2012 when it received a capital investment from General Atlantic and Dynamo. Since then, XP acquired a couple of companies and received a larger investment in 2017 from Itau Unibanco (NYSE: ITUB) for a 49% stake. The company floated the largest IPO of a Brazilian company at the time in 2019 on NASDAQ, valued at $10.5 billion (in today’s USD).
Currently, XP trades at a $6.9 billion market cap (USD). The company has grown client assets at a 24.3% CAGR since its IPO in 2019, and a 51.3% CAGR since its original 2012 investment. XP has launched various new investment products since its IPO and has grown into a full financial services ecosystem for retail and institutional clients.
Ownership Structure
In July 2023, XP terminated the shareholders’ agreement it had with ITUB, one of its primary competitors, and increased the number of independent directors on its Board. Currently XP Control LLC, effectively a coalition of major stakeholders operating under a unified governance agreement, owns 19% of shares outstanding yet 70% of voting rights. Some of these stakeholders include founding members of XP, Itau (ITUB) and General Atlantic.
Lines of Business
XP operates across four lines of business.
1. Retail Investments
This product line includes equities, fixed income and a funds platform from XP Asset Management and third-party asset managers. XP holds a 50% market share for individuals in the BMF and Bovespa exchanges of Brazil.
2. Retail Financial Services
This product line includes:
Distribution of P&C and life insurance from third-party and proprietary sources
$12.5 billion (USD) in client assets from in-houe and third-party asset managers distributed on the platform
Over 1 million active XP-branded credit and debit cards
More than $3 billion (USD) credit portfolio, 90% of which is collateralized with investments on the XP platform
3. Institutional
This product line includes a wide range of products and services for domestic and international clients including family offices, insurance companies, corporate treasuries, pension funds and asset managers. Products across all asset classes are offered.
There is also an opportunity for geographic expansion outside Brazil.
4. Corporate & Issuer Services
This line represents a complete capital market solution to corporate clients with revenue exceeding $100 million. XP provides issuer services for capital markets as well as M&A advisory.
Is Growth Tapping Out?
XP has experienced very strong growth over the past several years. Client asset growth remained strong, but I noticed that the number of active clients in the graphic below has leveled off. Growth in the credit portfolio and cards has also leveled off.