Executive Summary / Key Takeaways

• XP’s 2024 corporate restructuring that positioned its bank as parent company delivered a 35% reduction in cost of capital, creating a fortress balance sheet with an 18.5% CET1 ratio that significantly exceeds the 12% peer average—yet the stock trades at just 10x earnings, suggesting the market has not repriced this transformation.

• Wholesale banking achieved a historic record of BRL 729 million in Q3 2025, growing 32% year-over-year with corporate revenues up 77%, while retail net new money consistently hit the BRL 20 billion quarterly target—demonstrating that XP’s ecosystem diversifies rather than deteriorates under pressure.

• The multichannel distribution evolution, with 60% of net new money now originating from B2C channels (internal advisors, self-direct, private banking) in addition to the traditional IFA network, proves XP can reduce dependency on any single advisor productivity model.

• Valuation at 0.5x price-to-operating-cash-flow and 0.54x price-to-free-cash-flow—with a 22.5% ROE and 29% profit margin—prices in terminal decline that contradicts management’s guidance for sustained double-digit growth and 50%+ capital returns.

Setting the Scene: The Rebirth of Brazil’s Investment Platform

XP Inc., founded in 2001 in Grand Cayman and operationally headquartered in Brazil, has spent two decades transforming from a pure-play brokerage into what management now calls a “comprehensive financial ecosystem.” This evolution matters profoundly for investors because it changed XP’s identity from a cyclical equity broker dependent on transaction volumes into an integrated financial institution capturing spreads, fees, and recurring revenue across the client lifecycle. The critical inflection arrived in Q4 2024 when the company completed its corporate restructuring, positioning its bank as the parent entity and reducing its cost of capital by 35%—a structural improvement that enhances every incremental dollar of revenue and positions XP to compete for business previously inaccessible.

XP operates in a Brazilian financial market defined by extremes: a SELIC rate at its highest in nearly two decades (around 15%), driving retail investors toward short-duration, daily liquidity products, while simultaneously compressing credit spreads to historic lows as corporate issuers rush to lock in cheap funding. This environment punishes traditional equity brokers but rewards platforms that can intermediate fixed income flows and corporate origination—in other words, exactly where XP has repositioned. The competitive landscape reflects this split: BTG Pactual (focused on high-margin wholesale and private banking with 28.1% ROAE), Nubank (chasing 127 million customers with a super-app strategy), and Inter & Co (low-fee super-app model). XP’s moat lies in its open architecture that allows clients to choose transactional, fee-based, or hybrid models—a degree of flexibility no competitor matches.

The company’s multichannel evolution from a B2B IFA-dependent model to a balanced ecosystem is the strategic story hiding beneath headline numbers. By 2021, XP launched direct B2C channels that now contribute over 60% of net new money, while simultaneously building wholesale capabilities that vaulted its broker-dealer to 17% market share and DCM ranking from 10th to 4th. This wasn’t diversification for its own sake—it was a defensive and offensive reaction to Brazilian bank reciprocity demands, where incumbents tie credit access to investment allocation. XP’s ecosystem now provides an alternative that preserves client choice and captures the full economics of financial intermediation.

Technology and Strategic Differentiation: The Open Architecture Moat

XP’s open platform architecture is its most defensible technological advantage. Unlike traditional banks that push proprietary products or fintechs with closed-loop systems, XP offers 18,200 advisors (both independent and internal) access to what it calls an “agnostic” model where clients can choose transactional, fee-based, or advisory remuneration. This matters because it breaks the zero-sum game of product commissions and aligns XP with client outcomes—21% of retail AUC already operates under fee-based models, scaling toward BRL 100 billion this year from BRL 40 billion last year. Each fee-based dollar is stickier, generates recurring revenue, and increases share of wallet as advisors cross-sell insurance, credit cards, and global investments.

The company’s technology stack drives advisor productivity through proprietary AI that classifies every conversation and optimizes allocation across fixed income, equities, and structured products. This is crucial because it unlocks “hidden potential” in the IFA network—historically underperforming advisors now receive the same CRM, sales management, and allocation tools that power internal advisor success. The impact appears in segment performance: new verticals (credit cards, insurance, retirement plans, global accounts, consortium ) grew 24% year-over-year to BRL 757 million in Q3 2025, while fixed income revenue reached BRL 988 million (20% growth) by leveraging a platform that processes 40,000 daily average fixed income trades—making XP Brazil’s largest fixed income market maker.

The fund administration business, with BRL 248 billion in AUA, exemplifies XP’s strategy of accepting lower ROA for ecosystem lock-in. By providing accuracy and service quality for institutional and private bank clients at ROAs below typical fund fees, XP ensures those institutions flow trading and asset allocation through XP’s platform rather than competing directly. This creates a barbell effect: low-margin infrastructure at the base supports high-margin product distribution at the top, a structure impossible for pure-play competitors to replicate without massive scale investment.

Financial Performance: Evidence of Ecosystem Monetization

XP’s Q3 2025 results validate that the ecosystem strategy generates earnings power even in adverse conditions. Record net income of BRL 1.330 billion grew 12% year-over-year while ROE held steady at 23%, demonstrating resilience as management simultaneously invests in growth and returns capital. The 18.5% CET1 ratio provides 650 basis points of excess capital above peer averages, giving XP flexibility to weather volatility, fund the BRL 33 billion corporate securities warehouse book , and maintain BRL 20 billion quarterly retail net new money targets even when competitors pull back.

Segment-level performance tells a nuanced story. Retail revenue of BRL 3.7 billion grew only 6% year-over-year, hamstrung by a 10 basis point decline in overall take rate and a 20 basis point collapse in fixed income take rate. This compression stems directly from the macro environment: high SELIC rates drive clients toward daily liquidity Certificates of Deposit (CGs) that now represent 45% of new fixed income allocations versus 25% historically. The implications are twofold—near-term revenue headwinds mask underlying 16% growth in client assets to BRL 1.9 trillion, and the velocity of asset gathering positions XP to capitalize dramatically when rate cuts eventually steepen the yield curve and extend duration.

Wholesale banking delivered the quarter’s standout performance with BRL 729 million revenue (32% growth), led by corporate solutions surging 77% as XP deployed hedging solutions for large clients issuing debt into tight credit spreads. This breakout matters because it proves the cost-of-capital reduction is translating into competitive wins—bank-led DCM distribution captured 10% market share while the broker-dealer maintained 17% leadership. The strategy to build the corporate securities warehouse in Q4 2025 for 2026 distribution creates an asymmetric payoff: if credit spreads widen and corporate issuance stalls (as management expects due to 2026 elections), XP will be the only platform with inventory to sell to starved retail clients, effectively front-running the market.

Cash flow generation underscores the thesis disconnect. Annual operating cash flow of BRL 11.18 billion and free cash flow of BRL 10.85 billion produce a price-to-operating-cash-flow ratio of 0.5x and an FCF yield exceeding 100%. These metrics make no sense for a company with 29% operating margins and double-digit asset growth—they imply either imminent collapse or extreme market skepticism about sustainability. Management’s capital return program (BRL 2.4 billion in 2025, 50%+ payout) suggests insiders see no such collapse, instead choosing to harvest cash while preserving a BIS ratio above 21% for opportunistic buybacks during expected 2026 volatility.

Outlook and Management Guidance: Preparing for an Asymmetric 2026

Management’s commentary reveals deliberate positioning for macro volatility they clearly see coming. Thiago Maffra’s direct statement that “next year we can possibly see an increasing volatility and therefore, a reduction in corporate clients’ appetite for new offerings” indicates the BRL 33 billion warehouse build is not speculation—it’s hedging. By acquiring high-quality corporate securities in Q4 2025 when spreads are tight, XP plans to become the primary distributor in 2026 when traditional DCM activity typically slows (especially Q1) and election uncertainty paralyzes new issuance. This strategy has direct precedent: the company quadrupled its wholesale growth by solving corporate hedging needs, and the warehouse extension applies the same logic to anticipated retail demand shifts.

The retail net new money target of BRL 20 billion per quarter is being defended despite a softer than expected 2025. Maffra explicitly states the number is “reasonable” while acknowledging that rate cuts would accelerate flows—a scenario not baked into guidance that provides pure upside optionality. The fact that XP achieved this target in Q3 (BRL 20 billion) despite H1 disruptions from bank reciprocity and Banco Modal integration proves the underlying client acquisition engine is intact. The emerging affluent and private banking credit card products, launched in Q2 2025, contributed to the 103% year-over-year revenue growth in new verticals, showing that cross-sell is moving beyond early adopters.

Management’s margin guidance frames a deliberate trade-off. While the 30% EBT margin target remains “doable” for 2026, near-term investments in 500 new sales hires and technology infrastructure will keep efficiency “flattish.” This matters because it signals XP is sacrificing marginal efficiency to accelerate share gains during a weak competitive period. When BTG grows revenue 37% but focuses on high-net-worth, and Nubank chases volume with minimal investment depth, XP’s choice to build infrastructure suggests it sees a market share inflection approaching. The 180 basis point increase in capital ratio to 21.2% in Q3 demonstrates the financial flexibility to absorb this investment without diluting returns.

The guidance around capital returns (over 50% of net income for 2025-2026) is strategically conservative. Maffra explicitly defends the high BIS ratio: “we believe we will have good opportunities next year” for buybacks at better prices. This indicates management views current volatility as temporary and is positioning to exploit 2026 dislocations—a classic “dry powder” strategy that aligns with the warehouse build but contradicts the market’s low valuation assumption of perpetual decline.

Risks and Competitive Asymmetries

The primary thesis threat is political and regulatory uncertainty heading into Brazil’s 2026 elections. Maffra’s warning about “possible changes in taxation of tax-exempt fixed income instruments” directly challenges the retail profitability engine. If tax-exempt CGs lose their status, the 45% of new allocations in daily liquidity products could shift back to banks offering bundled credit, reversing XP’s multichannel gains. However, XP’s diversification into credit cards (9% TPV growth), insurance (25% premium growth), and global accounts provides offsetting revenue streams that pure brokerages lack. The risk is real but mitigated by the ecosystem’s non-investment verticals reaching BRL 757 million in Q3, a 24% growth rate that would be sustainable even under adverse tax reforms.

Credit spread widening poses dual risk to wholesale banking. If spreads move materially wider as Mansur expects, the BRL 33 billion warehouse book could face mark-to-market losses before distribution. XP’s defense is twofold: the portfolio consists of high-velocity turnover assets rather than buy-and-hold positions, reducing duration risk, and the company maintains a “conservative risk profile” even during record performance. The key monitor becomes warehouse velocity—if XP cannot distribute securities to retail clients in 2026 as planned, capital will be trapped in lower-yielding instruments during a rising rate environment, compressing wholesale margins that just reached record levels.

Competitive pressure from large bank reciprocity demands remains a structural headwind. Victor Mansur notes that “if banks keep asking for investments in terms of reciprocity, we may suffer a bit more,” but adds the crucial nuance: “the ROA of this money is extremely low, so the impact in revenues is not relevant.” This frames the issue as market share optics, not earnings impact. However, if major Brazilian banks intensify bundling in response to XP’s growth, client acquisition costs could rise as the platform competes for primary banking relationships. XP’s credit card launches and digital accounts are direct counters, but they’re nascent relative to incumbents’ scale, making 2025-2026 a critical proving period.

Advisor network productivity remains an internal execution risk. With 18,200 total advisors showing a “small decrease” year-over-year, XP is actively pruning lower performers while layering on AI tools to boost median productivity. This creates a J-curve effect—near-term advisor count pressure while the fee-based model (growing to BRL 100 billion AUC) requires fewer transactional advisors. The risk is that pruning too aggressively while training tools are still scaling could temporarily reduce net new money capture, making the BRL 20 billion quarterly target vulnerable to competitive poaching of top IFAs.

Valuation Context: Pricing a Permanently Impaired Broker at Peak Earnings Power

XP currently trades at $17.76 per share, a level that embeds assumptions of fundamental deterioration inconsistent with management’s strategic repositioning. The 10.1x trailing P/E multiple positions XP as a mature, declining brokerage, yet the company generated record net income of BRL 1.33 billion in Q3 with 22.5% ROE and 29.4% profit margins—metrics that typically command premiums. The forward P/E of 10.6x offers no multiple expansion for a fee-based model scaling at 150% annually, suggesting the market treats XP’s earnings as cyclically peaked rather than structurally enhanced.

The cash flow multiples reveal the true disconnect. Price-to-operating-cash-flow of 0.5x and price-to-free-cash-flow of 0.54x, with FCF yield exceeding 100%, are artifacts typically associated with distressed asset runoff, not ecosystem expansion. This matters because XP is not burning cash—it’s generating BRL 10.85 billion in annual free cash flow while returning BRL 2.4 billion to shareholders. The market is effectively pricing the company as if this cash flow will disappear within two years, ignoring both the 35% cost-of-capital reduction that enhances cash conversion and the 16% AUC growth that compounds future cash generation.

The balance sheet ratios support capital deployment flexibility but highlight a unique risk. Debt-to-equity of 772% appears alarming until contextualized by the 2024 restructuring that shifted corporate debt to cheaper bank-level funding; the 1.29 current ratio and 18.5% CET1 ratio demonstrate liquidity is ample. The negative Enterprise Value of -$75.29 billion (caused by subtracting massive cash from market cap) mathematically proves the market assigns zero value to the operating business—a logical impossibility for a company with BRL 1.9 trillion in client assets and 17% broker-dealer market share.

Comparative valuations expose the asymmetry. BTG Pactual (BPAC11) trades at market rates reflecting its 28.1% ROAE and 37% revenue growth. Nubank (NU) commands 12.1x sales and 30.6x earnings for 39% growth but operates at lower margins (39.8% profit vs XP’s 29.4%). Inter & Co (INTR) trades at 0.66x sales with 13.8% ROE, reflecting its lower-margin super-app model. XP’s 0.54x sales and 0.39x book value represent a 60-70% discount to slower-growing peers, despite having the highest CET1 ratio and only true open architecture. This valuation gap can persist only if one believes XP’s entire earnings base is regulatory-impaired or technologically obsolete—both contradicted by Q3’s wholesale record, 24% growth in new verticals, and an AI-enhanced platform that processes 40,000 daily fixed income trades.

Conclusion: A Fortress Ecosystem Priced for Obsolescence

XP’s investment narrative hinges on a singular disconnect: the market prices the company as a declining retail broker despite evidence of a fully integrated financial ecosystem that just reduced its cost of capital by 35% and achieved record wholesale banking earnings. The wholesale segment’s 77% corporate revenue growth and strategic BRL 33 billion warehouse build position XP to dominate 2026 DCM distribution when competitors retreat from volatile markets—a structural advantage born from capital reorganization that no pure brokerage can replicate. Simultaneously, the fee-based model’s growth to BRL 100 billion AUC transforms client relationships from transactional to advisory, increasing share of wallet and insulating against the take rate compression that plagued fixed income in 2025.

The critical variables that will resolve this mispricing are warehouse velocity and retail mix shift timing. If XP successfully distributes its warehouse inventory during H1 2026’s expected issuance drought, the wholesale segment will demonstrate resilient earnings power that commands a higher multiple. If SELIC rates begin declining and retail clients extend duration from 45% daily liquidity allocations back toward term products, the retail take rate will inflect upward, converting BRL 1.9 trillion in AUC into sustainably higher revenue. The 50%+ capital return commitment with a 21.2% BIS ratio ensures shareholders are paid to wait while management executes.

The competitive moat is neither technology nor scale alone, but the integrated flywheel: corporate origination and warehouse financing provide exclusive products for retail distribution, while retail AUC growth lowers cost of capital for wholesale lending. This virtuous cycle, activated by the 2024 bank-parent restructuring, explains why 6% retail revenue growth coexists with wholesale records and why 22.5% ROE is sustainable despite macro headwinds. At $17.76, XP trades as if this flywheel will break—priced for terminal decline despite fortress capital, accelerating non-banking verticals, and demonstrated wholesale dominance. The asymmetric setup rewards investors who recognize that Brazil’s most complete investment ecosystem cannot remain priced at less than one year’s free cash flow any more than a fortress banking license and trillion-real client base can be valued at zero.