VTEX is an exciting firm. Even though most investors believe that SaaS companies offer similar products, the architecture they’re built upon plays with an impressive relevance in the product capabilities.
We’ll talk about this when we get to its Deep Dive post. Tomorrow we have new posts about Stone. This is going to be our third deep dive post about the company.
As usual, I always suggest looking at the previous posts and reading something that grabs your attention.
Among the topics, we’ll discuss i) Stone’s main competitive advantage; ii) our new top-down model for the payment industry in Brazil and what to expect in terms of market share; and iii) a quick update on our model.
Yet, if you’re not a subscriber, make sure to subscribe to receive it in your mailbox on Saturday morning.
Having said that, VTEX adjusted the FX-neutral growth guidance to 24% from guidance of 24% to 27% in 2022. According to our estimate, considering FX appreciation in LatAm, the guided revenue should be ~$160mn.
In short, FX appreciation in LatAm compensated for GMV growth deceleration.
In addition, we highlight the margin gains, delivering more than a 500bps increase in gross margin year-over-year, expanding headcount by only 2%. Sell-side is wrong about operational margins on this one.
About the backlog, as we saw happening to Shopify, it has been normalizing and not it’s following the revenue growth, which is okay.
Management commented on a relevant backlog growth in retail companies looking to implement live commerce capabilities.
According to our industry check, VTEX could be accelerating its growth much more, but it has funding and headcount limitations, though the company is growing at a healthy pace.
The company has been trying to expand in the US and Europe, though it hasn’t been easy. Most foreign companies go with the big guys, though VTEX’s solution is pretty good.
So, they’ve been working in a strategic partnership to increase its penetration in markets where its brand is unknown.
Partnership #1
Recently VTEX announced a strategic partnership with Paypal, just like Shopy has one with Stripe. We know a few of you are skeptical about these partnerships.
However, consider that VTEX and Shopify Plus focus on enterprise customers, and as we all know, in the payment industry, the base of the pyramid gives you scale, not profitability.
It’s an incredibly competitive business, where just a few will thrive. Essentially, white labeling Paypal as VTEX payments has put them in an advantageous position.
They can capture a lot of the value upfront whenever a merchant utilizes VTEX as a payment gateway. In our estimates, VTEX grabs low double bps take rate.
For the customer, VTEX ensures an easy implementation in a frictionless way and switching providers as needed. This potentially helps to reduce churn and increase the lifetime value of customers.
Second, it gives a distribution network to payment providers where they can offer their solutions to VTEX customers in a scalable way, as commented in our post about Shopify.
Be Careful
I’d like to use this space to suggest an improvement in the earnings call. According to management:
“In the first quarter, GMV has a robust performance as a consequence of healthier consumer sentiment in Latin America as well as the initial recovery of some verticals, such as electronics that were affected by inventory shortages in the second half of last year. Meanwhile, verticals such as apparel and accessories, beauty and health and groceries continued its high growth performance, all above 50% year-over-year growth in USD. As a consequence, GMV growth accelerated to 33.2% in U.S. dollars resulting in 18.6 percentage points increases versus our fourth quarter GMV growth”.
Honestly, I don’t know how helpful it is to evaluate industry performance in USD, not in the current FX. For instance, in the 4Q21, the BRL depreciated 8% vs. the USD but appreciated 18% in the 1Q22.
Yeah… Considering FX fluctuation, you could simply tear the previous comment and throw it away because the interpretation would be different.
IR Team has to consider that BRL’s volatility is higher than S&P 500. 😁
“96% of VTEX customer reviewers are willing to recommend VTEX to others, the highest score amongst our peers. We believe this is a huge validation of our product and technology purely based on our customer feedback and give us the confidence to continue pushing forward towards our desired future”.
Partnership #2
Partnership #2
Finally, we believe it’s important to comment on partnerships that happened followed the 1Q22 with TikTok and EBANX.
The partnership with EBANX is focused on cross-border payments collaboration in Latin America and aims to broaden cross-border payments for Brazilian e-commerce companies in the region.
With this partnership, VTEX reinforces the offer to provide customers with a new way to grow their business through a complete solution.
Like PayPal, the EBANX partnership will be monetized with a rebate of the payment volume that flows through the platform.
VTEX also partnered with TikTok for business to offer an app available in the VTEX store for all customers that integrate directly to TikTok, improving customers' asset sharing process.
This app will help customers use TikTok for business features on VTEX — directly. Initially, it will be available for VTEX customers in Brazil. And in the coming months, it will be expanded to other countries.
Therefore, VTEX has made strategic partnerships with globally recognized players, which we believe should help the company increase its penetration in new markets.
Even though we’re skeptical about the company's potential, considering limited funding, we’re extraordinarily optimistic about its product, which we genuinely believe it’s good.
So, if you’d like to know more about VTEX, Shopify, or the payment industry, subscribe to our newsletter to get them into your mailbox.
