XP falls on lower Q2 profitability, investments impact earnings

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Brazilian financial products and services company XP (XP) was down ~9% after reporting lower Y/Y profitability in Q2, primarily because of investments in certain new, early stage initiatives.

Mainly, investments were made as part of a share purchase deal with Itaú Unibanco and an additional investment of R$500M was made in the first semester, CFO Bruno Constantino said during the company’s Q2 earnings call.

Q2 adjusted EBITDA decreased 2% from R$1,245M in 2Q21 to R$1,215M. Adjusted net margin decreased 375 bps in 2Q21 to 30.5% in 2Q22, above the top of medium-term guidance of 30%.

Adjusted net income grew 1%, from R$1,034M in 2Q21 to R$1,046M in 2Q22.

“We know we are in a tough macro environment with the bear markets, and that has an impact in the investment business, especially, but despite these tough macro environment, we were able to deliver our all-time-high record quarterly revenues,” Head of Investor Relations Andre Martins said.

Revenue stood at R$3.43B (+13.6% Y/Y). Total gross revenue grew 13% from R$3.2B in 2Q21 to R$3.6B in 2Q22.

In the last two years, XP has beaten EPS estimates 6 times and missed 1 time. Revenue estimates have been beaten 4 times and missed 4 times.

The company has 1 year price performance of -57.73%, while the financials sector median is -8.73%. It gets a Sell rating from Seeking Alpha’s Quant Rating system.

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