XP Inc.'s Strategic Resilience and Shareholder Returns in a Macroeconomic Downturn

In an era of global economic uncertainty, XP Inc. (XP) has emerged as a standout performer in Brazil's financial services sector. The company's ability to navigate macroeconomic headwinds—ranging from inflationary pressures to fiscal imbalances—stems from a trio of strategic pillars: a rapidly expanding fee-based model, disciplined cross-selling initiatives, and aggressive share repurchases. These strategies not only insulate XP from broader market volatility but also position it to deliver robust shareholder returns and long-term value creation.

Fee-Based Model: A Shield Against Volatility

XP's fee-based model has become a cornerstone of its resilience. In 1Q25, retail revenue totaled R$3.44 billion, with a 10% year-over-year (YoY) increase driven by a 44% surge in Fixed Income revenue. This shift toward fee-based income—now the largest contributor to retail revenue—reduces reliance on transactional revenue, which can fluctuate with market conditions.

The Annualized Retail Take Rate of 1.25% in 1Q25, though slightly down quarter-over-quarter (QoQ), reflects XP's ability to maintain pricing discipline while expanding its client base. With 4.7 million active clients and R$1.3 trillion in client assets, XP's platform benefits from compounding growth: every new client adds to a network effect that amplifies fee-based revenue.

Cross-Selling: Diversifying Revenue Streams

XP's cross-selling strategy has proven equally vital. In 1Q25, Corporate & Issuer Services revenue rose 11% YoY to R$562 million, despite a 6% QoQ decline. This growth was fueled by cross-sell opportunities in derivatives and energy, which generated R$280 million in the quarter—a 23% YoY increase. By leveraging its vast advisor network (18,100 advisors as of 1Q25), XP has expanded into higher-margin segments like Debt Capital Markets (DCM), capturing market share even as industry-wide volumes dipped.

This diversification is critical in a macroeconomic environment where single-product models falter. XP's ability to offer integrated financial solutions—from retail investing to corporate services—creates a moat against competitors and stabilizes revenue during downturns.

Share Buybacks: Capitalizing on Undervaluation

In May 2025, XP announced a R$1 billion share repurchase program, underscoring its commitment to disciplined capital management. This move, funded by existing cash reserves, aligns with the company's goal to maintain a Basel I (BIS) Ratio between 16% and 19% by 2026. As of 1Q25, XP's BIS Ratio stood at 19.0%, providing ample room for buybacks without compromising regulatory compliance.

The timing of the repurchase program is strategic. With XP's Adjusted ROAE at 24.1% and Adjusted ROTE at 30.2%, the company generates strong returns on equity, making buybacks a compelling use of capital. By reducing share count, XP enhances earnings per share (EPS) and signals confidence in its intrinsic value—a rare advantage in a market where many firms are cutting dividends or delaying buybacks.

Navigating Brazil's Macroeconomic Challenges

Brazil's 2025 macroeconomic landscape is a mixed bag. While GDP growth is projected to rise to 2.3%, inflation remains stubbornly at 6.0%, and fiscal imbalances persist. XP's resilience lies in its ability to adapt to these conditions:

• Inflation Control: XP's low-fee model reduces client sensitivity to interest rate hikes, as users prioritize cost efficiency.
• Fiscal Stimulus: Government programs like "Minha Casa Minha Vida" and payroll-deductible credit have boosted household income, indirectly supporting XP's retail client base.
• Currency Volatility: A stable BRL/USD exchange rate (6.00) and XP's focus on domestic financial services mitigate foreign exchange risks.

Investment Implications

XP's strategic initiatives create a compelling case for long-term investors. The company's fee-based model ensures recurring revenue, cross-selling diversifies profit streams, and buybacks enhance shareholder value. In a macroeconomic downturn, these factors combine to create a “flight-to-quality” dynamic: investors seeking stable returns are drawn to XP's disciplined approach.

However, risks remain. Brazil's fiscal gap and potential interest rate hikes could pressure XP's cost of capital. Yet, the company's strong balance sheet, with LTM SG&A expenses declining 10% QoQ to R$1.4 billion, suggests it can navigate these challenges without sacrificing growth.

Conclusion

XP Inc. exemplifies how strategic foresight and operational discipline can turn macroeconomic headwinds into tailwinds. By prioritizing fee-based growth, cross-selling, and capital efficiency, XP has positioned itself as a leader in Brazil's evolving financial ecosystem. For investors seeking resilience and value creation, XP offers a rare combination of defensive qualities and growth potential—a testament to its ability to thrive even in the most challenging environments.