XP: Brazil’s Robinhood goes from hot sensation to cold case

XP Investimentos is a Brazilian success story that has gone astray. The online brokerage’s share price jumped almost 30 per cent to $34.50 at its debut on the Nasdaq exchange in December 2019. It hit peaks of more than $50 on three occasions during the next two years. This week, it is at an all-time low of $16.50.

What went wrong? The Nasdaq Composite has risen 30 per cent during XP’s lifetime, while XP has lost half its opening day value. This year, the index is down 29 per cent and XP is 45 per cent lower. While global conditions are part of the story, changes in XP’s domestic market account for the rest of the drop.

XP has a different business model to Robinhood. But like the US online broker, it owed much of its success to low interest rates. Brazil’s central bank cut its policy rate from 14.25 per cent in 2016 to just 2 per cent in March last year. Brazilians had been used to juicy returns from bank deposits. When those faded, XP offered spicier options such as equities and corporate debt.

With the policy rate now back up to 13.75 per cent, there is less reason to buy risky assets. XP’s net inflows of R$35bn ($6.5bn) in the third quarter were down 19 per cent from the previous quarter and down 7 per cent year on year.

XP’s other proposition is banking services — first investment funds, then credit, then digital accounts and other services — at a fraction of the usual charge. But XP’s costs have risen recently.

The XP share price has also suffered since the central bank stopped high street bank Itaú from taking control, leading to the slow sale of its 20 per cent stake.

Robinhood shares are meanwhile down about a half so far this year. XP would doubtless prefer comparisons with giant US low-cost broker Charles Schwab. To merit this, it will need a steadier business model and fewer flashy initiatives. A little boringness is now in order.