XP's IPO was the fourth largest in 2019.
Shares in XP, Brazil’s largest and fast-growing digital brokerage firm, posted a first-day gain of 28% in their debut on Nasdaq in December. The company, in which Itaú Unibanco retained a 49% stake, raised nearly $2 billion, becoming the fourth-largest IPO of 2019 in the US market.
XP’s strong valuation of $19 billion, or more than 60 times last year’s earnings, reflects growing optimism about Brazil’s economy, which only recently began showing signs of renewed economic growth. The success of the offering was also attributed to strong interest in fintech IPOs in the US, the company’s investment bankers said. Investor demand was almost 10 times the shares that were on sale.
One reason XP chose the US over Brazil for the IPO is because Brazilian stock exchange rules place restrictions on dual-class structures, such as XP’s, which gives 10 votes to holders of Class B stock and a single vote per share for Class A stockholders.
XP operates Brazil’s leading investment platform, which provides access to more than 600 investment products, including equity and fixed-income securities, real-estate investment funds, life insurance and pension plans. Pension reform in Brazil is expected to lead to growth in private pension savings and investments. First-time investors are seeking financial advice and bigger returns amid low interest rates.
XP aims to educate new classes of investors and widen access to financial services in Brazil with lower fees. The company plans to use some proceeds from the IPO for marketing and advertising to become a full-service digital banking platform next year that will be able to offer banking services, including loans, to existing clients. XP could also use some of the proceeds to acquire smaller fintechs in Brazil.