Executive Summary / Key Takeaways

• Strategic Diversification Fuels Record Profitability: XP Inc. has successfully transformed from a traditional brokerage into a diversified, tech-enabled financial ecosystem, achieving record net income of BRL 1.321 billion in Q2 2025 and a robust 24.4% ROE, demonstrating consistent profitability growth despite a challenging macro environment.
• Technology and Multi-Channel Approach as Core Moats: XP's proprietary technology platform and multi-channel distribution model (B2B and B2C) are critical differentiators, enhancing client experience, increasing advisor productivity, and enabling sophisticated offerings like tech-enabled financial planning for a broad client base.
• Resilient Growth in Retail and New Verticals: While facing headwinds in corporate and institutional net new money, XP's retail segment remains a strong growth engine, with new verticals like credit cards, insurance, and consortium services expanding rapidly and contributing significantly to revenue diversification.
• Capital Discipline and Shareholder Returns: The company maintains a conservative capital position with a CET1 ratio significantly above peers, supporting a commitment to distribute over 50% of net income in 2025 and 2026 through dividends and share buybacks, aligning with its BIS ratio target of 16-19%.
• Navigating Competitive and Macro Headwinds with Strategic Agility: XP is strategically responding to intense competition from large incumbent banks and fintechs, as well as macro challenges like high interest rates and potential tax changes, by leveraging its competitive cost of capital, warehousing strategy, and continuous product innovation to sustain market leadership.

The Genesis of an Investment Powerhouse

XP Inc. has evolved remarkably since its founding in 2001 in the Cayman Islands, transforming from a single-channel B2B IFA (Independent Financial Advisor) network into a comprehensive, tech-enabled financial ecosystem. This journey, particularly accelerating post-2021, has been marked by a relentless pursuit of diversification and innovation, positioning XP as a leading investment platform in Brazil. The company's strategic shift has been instrumental in navigating a dynamic market, characterized by high interest rates, evolving client demands, and intense competition from both traditional banks and agile fintechs.

At its core, XP's strategy revolves around an "all-weather ecosystem" that integrates retail, institutional, and corporate divisions to generate diverse investment opportunities. This foundational approach, coupled with a deep commitment to technological differentiation, has been key to its sustained growth and profitability. The company's history is not merely a chronological account but a narrative of strategic adaptation, where each phase has built upon the last to create a resilient and expansive financial services provider.

Technological Edge: The Engine of Differentiation

XP's competitive moat is significantly fortified by its proprietary technology platform, which underpins its ability to offer a sophisticated and comprehensive suite of financial products and services. This technological advantage is not just about digital presence; it translates into tangible, quantifiable benefits across its operations.

The company's platform is described as the "most complete and sophisticated in the country," enabling leadership in various segments, including equities, futures, FX, options, and ETFs, where it commands roughly 50% of the market. In fixed income, XP has become a "powerhouse," doubling its Assets Under Custody (AUC) in the last two years and achieving a daily average traded volume of 40,000 trades in 2024. This capacity is a direct result of its advanced technology for market making, origination, warehousing, and distribution of fixed-income instruments, including innovative bond repack structured notes.

A critical aspect of XP's technological differentiation lies in its proprietary tools designed to enhance advisor productivity and client satisfaction. These tools have increased daily activities by internal advisors by an impressive 11 times, leading to a 19% lower client churn and a 14% higher adherence to recommended allocation. Furthermore, XP leverages its tech-enabled platform to offer comprehensive financial planning programs to clients with BRL 300,000 and above, a service typically reserved for ultra-high-net-worth individuals by competitors. This initiative has yielded significant results, including a two-fold increase in insurance conversion, a rise in retirement plan conversion from 30% to 41%, and a 43% increase in net new money for clients engaged in financial planning.

XP's commitment to R&D and new technologies is evident in its continuous product development and platform enhancements. The company is investing in improving its banking product offerings, intelligent segmentation, and expanding its sales teams. The ongoing harmonization of booking models for hedges and balance sheet, driven by the new Central Bank regulation (4966), is expected to eliminate distortions in Other Comprehensive Income (OCI) from mark-to-market adjustments of government bonds, further streamlining its financial reporting and risk management. This technological roadmap is not merely about efficiency; it's about expanding XP's market reach, deepening client relationships, and ultimately driving higher profitability and market share.

Business Model and Strategic Pillars: An Integrated Ecosystem

XP's business model is built on three interconnected pillars: Retail, Wholesale Bank (Corporate & Issuer Services), and Institutional. Each segment plays a vital role in the company's integrated ecosystem, leveraging cross-selling opportunities and a robust distribution network.

Retail: The Growth Engine

The Retail segment is XP's primary revenue driver, contributing 77% of total revenues in Q2 2025. This segment serves individual clients with a diverse array of investment products and a growing suite of "new verticals." In Q2 2025, retail revenue reached BRL 3.6 billion, marking a 9% year-over-year growth. This growth was primarily fueled by equities, which saw higher average daily traded volume (ADTV), and fixed income, which grew 20% year-over-year to BRL 988 million. Notably, in Q1 2025, fixed income surpassed equities to become the largest revenue contributor in retail for the first time, reaching BRL 1.15 billion.

XP's multi-channel distribution, encompassing internal advisors, Independent Financial Advisors (IFAs), and Registered Investment Advisors (RIAs), is central to its retail strategy. While internal advisors demonstrate higher productivity due to standardized sales management and technology, XP is actively investing in improving IFA productivity through shared tools and methodologies. The company's target for retail net new money remains around BRL 20 billion per quarter, a level it consistently achieved in 2024, with BRL 16 billion recorded in Q2 2025.

The "new verticals" within retail are rapidly expanding, diversifying revenue streams beyond core investments. Combined revenues from FX, global investments, digital accounts, and consortium services surged 146% year-over-year to BRL 256 million in Q2 2025, with a target to reach BRL 1 billion annually in 2025. Credit card TPV grew 8% year-over-year to BRL 12.4 billion in Q2 2025, and new products targeting affluent and private banking clients are expected to accelerate this growth. Life insurance written premiums increased 45% year-over-year in Q2 2025, and retirement plan client assets grew 15% year-over-year to BRL 86 billion, highlighting significant penetration potential in these under-tapped markets.

Wholesale Bank: Origination and Distribution Powerhouse

The Wholesale Bank, comprising Corporate and Issuer Services, is a crucial growth engine, leveraging XP's capacity to originate, warehouse, and distribute corporate credit and other instruments. In Q2 2025, Corporate revenue grew a solid 14% year-over-year to BRL 279 million, supported by diverse solutions, particularly derivatives. Issuer Services, however, saw a 30% year-over-year decrease to BRL 268 million due to a tough comparison with Q2 2024's record Debt Capital Markets (DCM) activity.

XP's "warehousing strategy" is a key differentiator, where it temporarily holds corporate securities (reaching BRL 34 billion in Q2 2025) before distributing them to retail and institutional clients. This "unique loop to recycle" capital mitigates seasonal impacts and enhances competitiveness, particularly in a market facing potential tax rule changes and election-driven volatility in 2026. XP has become the leader in the local broker-dealer industry with a 17% market share and holds a dominant position in the secondary trading of corporate credit, with over 50% market share. Its ranking in OTC derivatives has improved to 4th (from 10th two years prior), and it is now #1 in interest rate swaps.

Institutional: Comprehensive Service and Fund Administration

The Institutional segment serves a broad client base, including independent fund managers, and benefits from XP's comprehensive ecosystem. While corporate and institutional net new money saw a negative BRL 6 billion in Q2 2025 due to macro dynamics and liquidity constraints, the overall client assets, AUM, and AUA reached BRL 1.9 trillion, a 17% year-over-year growth. Fund administration, with BRL 248 billion in Assets Under Administration (AUA) in Q1 2025, is a strategic offering, providing a full ecosystem to institutional and private bank clients, ensuring accuracy and efficiency in portfolio metrics despite its lower Return on Assets (ROA).

Financial Performance and Health: A Trajectory of Profitability

XP Inc. has demonstrated a compelling trajectory of financial performance, marked by consistent profitability and strategic capital management. In Q2 2025, the company achieved a record net income of BRL 1.321 billion, an 18% year-over-year increase. This was accompanied by a robust Return on Equity (ROE) of 24.4%, expanding 223 basis points year-over-year, marking 10 out of 11 quarters of consecutive growth. Diluted Earnings Per Share (EPS) grew even faster at 22% year-over-year, driven by the company's ongoing share buyback program.

Total gross revenues in Q2 2025 reached BRL 4.7 billion, a 4% year-over-year increase, with retail contributing 77% of this total. Despite a challenging environment for investment banking origination and issuer services, the company's diversified revenue streams proved resilient. The efficiency ratio, a key measure of operational effectiveness, improved by 161 basis points year-over-year to 34.5% (LTM), reflecting XP's commitment to cost discipline even amidst investments in technology and sales team expansion. Earnings Before Taxes (EBT) in Q2 2025 stood at BRL 1.3 billion, a 4% quarter-over-quarter increase, with the EBT margin expanding by 50 basis points. The net margin also saw significant expansion, reaching 29.7% in Q2 2025, up 320 basis points year-over-year.

XP maintains a strong and conservative capital position. Its capital ratio was 20.1% in Q2 2025, with a CET1 ratio of 18.5%, significantly higher than the industry average of 12%. Total Risk-Weighted Assets (RWA) to total assets decreased to 27%, the third consecutive reduction. The company's lending process, based on client investments as collateral, results in an Expected Credit Loss (ECL) lower than 1%, one of the lowest in the Brazilian industry. This robust capital base and disciplined risk management provide XP with substantial flexibility for strategic investments and capital returns to shareholders.

Competitive Landscape and Positioning: Differentiating in a Crowded Market

XP operates in a highly competitive Brazilian financial services market, vying with established giants like Itaú Unibanco , Banco Bradesco , Banco Santander Brasil , and disruptive fintechs such as Nu Holdings . XP's strategic positioning leverages its technological agility and specialized focus to carve out a distinct advantage.

Compared to traditional banks like Itaú (ITUB), Bradesco (BBD), and Santander (BSBR), XP differentiates itself through its digital-first approach and open product platform. While these incumbents boast extensive branch networks, broad customer bases, and diversified revenue streams, XP's emphasis on financial education and a tailored, tech-driven investment experience allows for greater efficiency in user engagement and product access. XP's proprietary educational portal, Xpeed, fosters user empowerment, potentially leading to stronger customer loyalty in digital channels. The new corporate structure, with XP Bank as the parent company, is expected to provide "considerably more competitive capital and funding prices," enabling XP to compete for business previously out of reach.

Against digital-native fintechs like Nubank , XP offers a broader and deeper suite of investment and wealth management tools. While Nubank (NU) excels in digital scalability and basic banking services, XP's comprehensive offerings in structured products, advisory services, and advanced financial planning provide a more sophisticated solution for mass-affluent and high-net-worth clients. XP's leadership in niche segments, such as its 17% market share in the local broker-dealer industry and over 50% market share in secondary trading of corporate credit, underscores its specialized competitive edge.

However, XP faces challenges. Incumbent banks, leveraging high interest rates, offer attractive tax-exempt products that can draw liquidity from corporate and institutional clients seeking credit line reciprocity. This dynamic has led to negative net new money in XP's corporate and institutional segments in Q2 2025. While XP has developed innovative instruments and partnerships to compete, the sheer scale and diversified financial health of larger banks often translate into more robust cash flow generation and higher operating margins. XP's reliance on the Brazilian market also presents a vulnerability to local economic fluctuations, though its diversified ecosystem aims to mitigate this.

Outlook and Guidance: Confident Growth Amidst Challenges

XP's management remains confident in its ability to deliver on its 2026 guidance, projecting total revenues to grow "more than 10%" in 2025. This outlook is grounded in controllable levers rather than an optimistic macro-economic forecast. The company anticipates double-digit AUC growth, driven by the natural appreciation of its fixed-income heavy asset base (approximately 65% linked to the Selic rate) and an expected BRL 20 billion in retail net new money per quarter.

The second half of 2025 is projected to see accelerated revenue growth, supported by more business days, continued rollout of new products, and an expanding advisor network. New verticals, which grew 32% in 2024, are expected to maintain a fast pace, with credit card growth accelerating due to new affluent-focused products and insurance premiums maintaining a 40% year-over-year growth. The consortium business is also expected to significantly increase its revenue contribution, potentially exceeding BRL 100 million in 2025.

For profitability, XP targets an EBT margin between 30% and 34% by 2026. This will be achieved through continued operational leverage, as evidenced by its improving efficiency ratio, and the "J-curve" effect of maturing cross-sell verticals and internal sales forces transitioning to positive and accretive margins. Management has explicitly stated its commitment to cost control, adjusting expenses to ensure efficiency ratio improvement even if revenues are at the lower end of guidance.

XP's capital distribution plan targets a payout ratio of "more than 50%" of net income for 2025 and 2026, which management views as conservative given its strong capital position. The implementation of new Central Bank regulations is expected to further enhance its BIS ratio, providing additional capital flexibility.

Risks and Challenges: Vigilance in a Dynamic Market

Despite a compelling growth story, XP faces several pertinent risks. The Brazilian macro environment, particularly high interest rates, continues to influence client behavior, leading to preferences for shorter-duration fixed-income products and impacting net new money in corporate and institutional segments due to liquidity constraints and reciprocity demands from banks. Potential changes in tax rules could impact tax-exempt fixed-income instruments and Debt Capital Markets (DCM) dynamics, while upcoming elections in 2026 could introduce increased volatility and reduce corporate appetite for new issuances.

Operational challenges include the need to continuously enhance productivity in the B2B IFA channel and manage the competitive landscape where large banks are aggressively pricing products and demanding investment reciprocity. While XP's diversified ecosystem and strategic warehousing mitigate some of these risks, sustained vigilance and adaptive strategies are crucial for long-term success.

Conclusion

XP Inc. stands as a compelling investment case, having successfully transformed into a diversified, highly profitable financial ecosystem in Brazil. Its journey from a specialized brokerage to a leader in investment services, underpinned by a relentless focus on technological innovation and a multi-channel distribution strategy, has yielded record net income and robust profitability metrics. The company's ability to leverage its proprietary technology for enhanced client experience, advisor productivity, and sophisticated product offerings, including tech-enabled financial planning, forms a strong competitive moat against both traditional banks and agile fintechs.

While XP operates in a dynamic and competitive market, facing macro-economic headwinds and intense rivalry, its strategic agility, disciplined capital management, and commitment to shareholder returns position it for continued growth. The expansion of its retail segment, particularly through rapidly growing new verticals, coupled with its strong wholesale banking capabilities and competitive cost of capital, reinforces its trajectory towards achieving its ambitious 2026 guidance. Investors should recognize XP's profitable evolution as a testament to its strategic foresight and operational excellence, making it a formidable player in Brazil's evolving financial landscape.