XP Inc (NASDAQ: XP) stock fell over 2.5% in the pre-market session of November 10th, 2020 (as of 5:02 pm GMT-5 ; Source: Google finance) after the company’s Gross margin fell 345 basis points against the last quarter while Adjusted Net Margin lost over 228 basis points against the last quarter.
On the other side, net income more than doubled in the third quarter, and the company plans to expand its advisers’ network to take on traditional banks. The company’s adjusted net income has surged to 570 million reais in the third quarter, from 261 million reais a year earlier. The total number of active clients rose 12% qoq in the quarter, to 2.6 million, while assets under custody grew by 29% qoq to 563 billion reais. XP plans to expand its independent financial advisers’ network, saying it added 500 in October, totaling more than 7,000. The company has reported 55% YoY growth in revenue for 3Q20 to R$2.2 billion and well above our long-term target (+35%). This is mainly driven by strong growth of the Retail business. Over the first nine months of 2020, gross revenue rose 66% compared to the same period of the previous year. Retail revenue grew 80% from R$944 million in 3Q19 to R$1.7 billion in 3Q20. The main growth is due to included, in order of contribution Equities and Futures, reflecting resilient trading volumes and growing participation of retail investors at B3 Financial Products, represented by COEs (structured notes) and equity-linked derivatives and Fixed Income.
Moreover, Institutional gross revenue was up 38% to R$239 million in 3Q20 from R$173 million in 3Q19. Higher equity trading volume was the main driver along with higher Fixed Income secondary trading. Issuer Services revenue rose 18% year-over-year from R$143 million in 3Q19 to R$169 million in 3Q20. During the quarter, the REITs, with eighteen executed deals vs eleven in 3Q19 and the Equity Capital Markets (ECM) division, with participation in fourteen deals vs four in 3Q19.
Meanwhile, the company is investing to further strengthen the IFA network. By providing additional capital to the offices, they can accelerate hiring and training of new IFAs across Brazil. The company maintains more than 659 commercial points that are well positioned to capitalize on opportunities to continue to take market share from the incumbent banks, which continue to close branches, particularly due to expanding digitalization during the pandemic.