Brazil’s Broker XP: Slowdown, Search for Efficiency and Marketing Spend in Aspen

Q4 funding falls more than expected by the market as platform invests in initiatives for high-income audience, such as parties in the US

XP has invested in marketing actions such as ski resorts in Aspen while facing challenge of slowing growth
January 20, 2023 | 08:54 AM

Read this story in

Portuguese

Bloomberg Línea — One of the favorite destinations of high-income Brazilians for North American snow tourism, the city of Aspen, in the state of Colorado, a famous ski resort in white mountains such as Snowmass, Highlands, and Buttermilk, received dozens of Brazilian visitors in recent days.

They were clients and guests impacted by XP’s (XP) marketing strategy, which includes offering experiences to a select group of influencers, with an eye on the repercussion in social networks.

The sponsorship of ski resorts reflects one of the initiatives of the largest brokerage in the country to try to attract the high-income public, but, on the other hand, according to executives of the platform itself, who asked not to be identified, it contrasts with the discourse of seeking efficiency gains in a moment of continuous market slowdown in face of double-digit interest rates. The fourth quarter operating preview, released last Tuesday night, gave new contours to the challenge.

PUBLICIDAD

Net funding from retail investors fell 11% from October to December compared to the three immediately preceding months, to R$29 billion - or R$9.6 billion per month. Total funding also fell 11% to R$31 billion, versus R$35 billion in the third quarter and R$41 billion a year earlier. The numbers fell short of market analysts’ estimates.

“KPIs [key performance indicators] support our view of a slowdown and weaker business trends in the fourth quarter and into 2023, with net funding in the low end of our guidance range of R$10 billion to R$15 billion per month,” Credit Suisse analysts Marcelo Telles and Daniel Vaz wrote in a report to clients.

For Santander analysts Henrique Navarro, Arnon Shirazi, and Anahy Rios, the preview showed XP was affected by increased uncertainty. “We believe that the combination of weaker volumes and the likely lower take rate may negatively affect revenue growth in 4Q22″, they wrote in a report to clients.

Yesterday (18) the XP share traded on Nasdaq had a slight rise of 0.74%, in a day of gains for financial institutions in the country: the papers of PagSeguro (PAGS) rose 0.72% in the New York Stock Exchange, and the units of BTG Pactual (BPAC11), 2.21% in B3.

PUBLICIDAD

In the last 12 months, however, the XP stock accumulated a devaluation of 45%. In relation to the maximum quotations above $50 in September 2021, the fall is close to 70%.

In a moment of a growth slowdown, XP has promoted successive cuts in its staff, which includes the departure of high-ranking executives. That was the case of Rubens Machado, who commanded the fixed income desk, and Arthur Totti and Roberto Keller, besides Karel Luketic, the partner responsible for the IM+ platform, as reported at the end of the year by Bloomberg News. Consolidated figures are not disclosed, but would reach 10% of a total of 7,000 employees, according to Brazil Journal.

A new round of cuts was promoted this week, according to sources and reports on LinkedIn.

For an executive who left last year, the moment XP is going through reflects a challenge expected from an institution that needs to maintain the pace of growth to sustain the increased cost structure in recent years - and this coupled with the fact that the platform ends up being a victim of the discourse that it would transform the financial market, something that takes time, but generates pressure for expansion.

XP promotes for the second year a meeting of influencers in a ski resort, in the USAdfd

Banks fighting over clients

In Aspen, the real estate market is heated by the number of Brazilians who have discovered in the region more than a holiday destination, according to Tony Marx, who has a tourism agency in the North American city and mediated XP’s negotiation to expose its brand in the place.

“It was epic: 550 Brazilians gathered at the biggest party ever seen in Aspen Snowmass,” Marx said.

PUBLICIDAD

An entrepreneur who sells, rents, and manages properties in Aspen, he used his Instagram account to share photos of the event at Elk Camp, a restaurant on top of the mountain where XP threw a party led by DJ Marina Diniz last Friday (13). The event also featured DJ Jack.E, famous for being the resident DJ at Les Caves du Roy, in Saint-Tropez.

Diniz, who plays at parties in popular destinations like Ibiza, London, Mykonos and Courchevel, played for the fourth time in Aspen since XP’s season opener in the city on the 6th.

The initiative in Aspen, which began last year, serves private banking and wealth management clients in an environment that reconciles family leisure and business connections.

Among the Brazilian guests at the ski resort was blogger and entrepreneur Mariah Bernardes, with 578,000 followers.

PUBLICIDAD

At the XP party were also people like Beta Whately, partner of Fizz Agency, specializing in influencer marketing, which would have been hired to bring guests on a list that included Deborah Quintela, manager of actress and influencer Pietra, and Marienne Coutinho, creator of She, a group that brings together names like writer Carla Madeira.

PUBLICIDAD

On his social networks, Whately promoted the XP Visa Infinite card. The product is one of the bets of the investment platform to expand spending with clients.

The operating preview showed 24% growth on a quarterly basis in trading volume (the TPV) with cards. The credit portfolio for retail advanced 8.4%, to R$ 15.5 billion.

XP’s revenue with cards grew 170% in 12 months, according to UBS bank report on the complete result of the third quarter. Analysts Thiago Batista, Olavo Arthuzo and Kaio Prato, of the Swiss bank, noted that the platform managed to increase the rate (fee) charged from customers by 0.10 percentage point, to 2.2%, in the quarterly comparison.

PUBLICIDAD

XP’s selling expenses totaled R$ 33 million between July and September, the last available data.

The universe of the biggest fashion brands has been increasingly explored by the financial group cofounded by Guilherme Benchimol. And this category of card has been explored by the platform to try to attract new account holders, in a dispute with other banks in the segment.

Itaú Personnalité, for example, operates in this luxury segment with the recently launched The One card, in partnership with Mastercard. The product grants unlimited access to VIP lounges of the LoungeKey program, discounts in the booking of exclusive hotels and in the purchase of tickets.

PUBLICIDAD

The last partnership of XP involving Visa Infinite was with Grupo Iguatemi (IGTI11), which, in 2022, will hold 100% of JK Iguatemi, a high-standard mall known for gathering shops of brands such as Prada, Gucci, Lacoste, Bottega Veneta, Dolce & Gabbana, Hugo Boss and Burberry, among others.

XP announced that it became the official brand of the financial sector of the chain in malls in the state of São Paulo, in addition to units in Rio Grande do Sul and Distrito Federal. That means that clients who have the XP Visa Infinite card active will have benefits throughout the year in 13 malls of the chain.

“In addition to connecting the brands, we see [the initiative] as an excellent opportunity to provide unique experiences to our customers,” said Lisandro Lopez, CMO of XP, in a statement.

PUBLICIDAD

From Aspen to the Super Bowl

Investing in moving clients in Aspen also allows XP to work its brand with high-income Brazilians who decided to take up residence in the United States, mainly in cities such as Miami, New York, and Boston.

It is an operation in which XP has also promoted adjustments in search of efficiency, which included the departure last week of executive André Rizzo, then CEO of XP USA.

A source in the digital marketing industry estimates that the platform spent about $2 million to gather influencers for the current snow season in Aspen.

PUBLICIDAD

In early 2022, the bank would have already invested “a few million dollars” to promote a similar gathering on the occasion of the Super Bowl in Los Angeles, the final of the American professional football league, according to people with knowledge of the matter who asked not to be identified.

VIP customers were invited to the final of the most popular sporting event in the United States, where tickets cost as much as $8,000 per person.

Model Alessandra Ambrósio would have been hired to participate in the event with an estimated fee of $100,000, according to the same people.

Read Also:

‘Massa Is Not Messi’; Argentina’s Bond Buyback An Unlikely Win, Goldman Sachs Says