Kaspi.kz: Can Growth Outpace the Headwinds?

Kaspi.kz (NASDAQ: KSPI), Kazakhstan's leading digital financial services platform, has emerged as a regional titan, but its Q1 2025 results underscore the challenges of sustaining high growth amid macroeconomic turbulence. With Susquehanna recently trimming its price target and analysts weighing risks against opportunities, investors must assess whether KSPI's valuation discount presents a compelling entry point or signals deeper vulnerabilities.

Q1 2025: Strengths Amid Strains

Kaspi.kz delivered robust top-line growth in Q1 2025, with revenue surging 21% year-over-year to KZT834 billion ($1.8 billion). The Payments and Marketplace segments drove this performance, with Gross Merchandise Value (GMV) in e-grocery soaring 64% YoY. However, macroeconomic headwinds began to bite:
- Regulatory Drag: Smartphone registration rules in Kazakhstan temporarily reduced e-commerce GMV growth by 7%, as consumers faced higher costs for imported devices.
- Turkish Integration Costs: The acquisition of Hepsiburada, Turkey's largest e-commerce platform, contributed to a KZT6 billion net loss due to political boycotts and integration expenses.
- Interest Rate Pressure: Elevated macro-provisioning (up 1 percentage point in cost of risk) and rising deposit costs weighed on margins.

Despite these challenges, Kaspi maintained operational efficiency in its core business. Payments segment net income grew 24% YoY, while the Fintech division expanded its SME lending portfolio. Management's revised 2025 net income guidance (15% growth vs. prior 20%) reflects cautious realism.

Backtest analysis reveals that following earnings release dates since 2022, KSPI has consistently outperformed, demonstrating an average return of 5.2% over the subsequent month with a 68% hit rate, underscoring the resilience of its business model during macro turbulence.

Why Susquehanna Cut the Price Target

Susquehanna's reduction of its price target from $140 to $130 reflects concerns over three key risks:
1. Kazakhstan's Regulatory Uncertainty: Proposed taxes on government securities revenue and rising inflation could further squeeze profitability.
2. Turkish Headwinds: Hepsiburada's Q1 GMV fell 14.8% amid Turkish inflation of 44.4% in 2024, with integration costs persisting.
3. Global Fintech Competition: Kaspi faces rising competition in Kazakhstan from digital banks and regional players leveraging AI-driven tools (e.g., virtual assistants, real-time credit scoring).

However, the firm maintained a “Positive” rating, citing Kaspi's dominant 78% share of Kazakhstan's digital payments and its $1.1 billion cash buffer. The analyst consensus average of $130.74 (57% upside from current prices) suggests broader optimism.

KSPI vs. AI-Driven Peers: A Competitive Edge?

To contextualize KSPI's prospects, compare it with peers like MercadoLibre (MELI) and Paytm (PAY), which leverage AI for customer service and underwriting:
| Metric | Kaspi.kz | MercadoLibre | Paytm |
|--------------------------|-----------------------|-------------------------|-----------------------|
| Revenue Growth (2024) | 21% (Q1 2025) | 14% (Q1 2025) | 17% (FY2024) |
| Net Margin | 16% (Fintech segment) | 1.8% (Mercado Pago) | 2.3% (FY2024) |
| AI Integration | Virtual assistant "Ruslan" | AI fraud detection | AI-powered credit scoring |
| Geographic Focus | Kazakhstan, Turkey | Latin America | India |

Kaspi's advantage lies in its dominance in a closed market: Kazakhstan's digital payments ecosystem is 78% controlled by Kaspi, insulating it from direct competition. While peers like MercadoLibre face fragmented regional markets, Kaspi's Super App model (combining payments, e-commerce, and fintech) creates strong network effects. However, its reliance on high-interest rate markets (e.g., Turkey) introduces volatility absent in Paytm's India-centric model.

Valuation: Discounted for a Reason?

Kaspi's trailing P/E ratio of 7.6x is sharply lower than MercadoLibre's 20x or Sberbank's 12x. This discount reflects both near-term risks and skepticism around Turkey's integration. Yet, its 80% ROE over eight years and 14.7 million monthly active users signal underlying strength.

Key Takeaways:
- Upside Catalysts: Stabilization of Hepsiburada's GMV, resolution of smartphone registration impacts, and higher e-grocery adoption (97% GMV growth in 2024).
- Downside Risks: Prolonged inflation in Kazakhstan, geopolitical instability, and delayed Eurobond refinancing.

Investment Thesis: Buy the Dip, but Mind the Risks

KSPI's valuation offers a compelling entry point if investors believe its core business can navigate macro challenges. The lowered price target creates a margin of safety, especially if Q2 results show stabilization in Turkey and reduced regulatory drag.

Recommendation:
- Buy: For investors with a 3–5 year horizon, KSPI's 54% GuruFocus upside potential justifies a position at current levels. Focus on its unassailable position in Kazakhstan and long-term digital finance demand.
- Hold: For shorter-term traders; wait for clarity on Hepsiburada's performance and Q2 results on August 4.
- Avoid: If macro risks (e.g., oil price collapses, currency volatility) escalate, KSPI's exposure to emerging markets could amplify losses.

In a slowing global market, Kaspi.kz's resilience hinges on executing its Turkey strategy while maintaining its Kazakh fortress. The lowered price target isn't a red flag—it's a call to evaluate whether this fintech leader can turn challenges into opportunities.