Sign in

    VTEX (VTEX)

    VTEX Q1 2024: 600bps gross margin gain, holds USD guidance

    Reported on Feb 25, 2025 (After Market Close)
    Pre-Earnings Price$8.13Last close (May 7, 2024)
    Post-Earnings Price$6.97Open (May 8, 2024)
    Price Change
    $-1.16(-14.27%)

    What went well

    • VTEX achieved a significant year-over-year expansion in gross margin, with non-GAAP subscription gross margin reaching 77.2%, a 328 basis point improvement from the same quarter last year, bringing them closer to their target model of 80% subscription gross margin and 75% overall gross margin.
    • Strong sales momentum and improved pipeline, particularly in Brazil, where VTEX continues to show strong momentum in signing new contracts, and globally, with increased recognition from industry analysts like Gartner, IDC, and Forrester, leading to more invitations to RFPs.
    • Robust performance in key markets such as Brazil, Colombia, Mexico, the U.S., and Europe, despite challenges in Argentina, has allowed VTEX to maintain their revenue guidance in U.S. dollars for the full year, demonstrating resilience and confidence in their ability to navigate and improve financial performance.

    What went wrong

    • Exposure to Argentina's challenging macroeconomic situation: VTEX's performance in Argentina has been significantly impacted by a severe economic slowdown, leading to a decline in consumption. The company acknowledges that Argentina's situation may get worse before it gets better, and it was the most relevant driver responsible for Q1 revenue being closer to the bottom of guidance and for revising down the FX-neutral annual revenue growth guidance.
    • Decline and volatility in services revenue: VTEX's services revenue was down year over year. While management attributes this to expected volatility due to hyper care models and implementation phases, the decrease raises concerns about the sustainability of this revenue stream.
    • Potential volatility due to high interest rates and challenging environment for retailers: The global environment of high interest rates poses a tough challenge for retailers and manufacturers, which could affect VTEX's sales momentum and new contract signings. Management highlights that this will bring volatility and that retailers face "really tough years ahead."

    Q&A Summary

    1. Guidance and Argentina Impact
      Q: Any changes in full-year guidance due to Argentina?
      A: VTEX is maintaining its annual guidance in U.S. dollar terms, supported by robust performance in key markets like Brazil, Colombia, Mexico, the U.S., and Europe. However, Argentina's challenging macroeconomic situation and consumption slowdown have impacted the FX-neutral growth guidance. Argentina was the most relevant driver for Q1 revenue being closer to the bottom of guidance and for revising down the FX-neutral annual revenue growth guidance. VTEX also raised its operating income and free cash flow margins guidance from mid to high single digits to high single digits, reflecting confidence in improving financial performance.

    2. Gross Margin Improvement
      Q: When will you reach your gross margin target model?
      A: In Q1, VTEX achieved a non-GAAP gross margin of 72%, expanding over 600 basis points year over year, moving closer to the target of 75% overall gross margin and 80% subscription gross margin. Significant enhancements in cloud efficiency contributed to this improvement. VTEX anticipates further gross margin expansion over the next 3 to 5 years, reaching its medium-term goals.

    3. Revenue Mix Between Existing and New Customers
      Q: What's the revenue mix between existing and new customers?
      A: Approximately one-third of VTEX's revenue growth comes from its existing customer base, while two-thirds is driven by adding new customers. Same-store sales growth remains in the mid-teens on a GMV basis.

    4. Service Revenues Outlook
      Q: How should we view service revenues going forward?
      A: Service revenue experienced expected volatility due to major customer implementations and hyper-care models last year. VTEX anticipates this volatility to decrease as system integrators mature, leading to less direct service involvement. The company remains optimistic about services and expects improvement in service margins in the future.

    5. AI Products and Strategy
      Q: How will AI products enhance your strategy?
      A: VTEX is investing heavily in AI, leveraging new capabilities like LLMs to provide business value to retailers and brands. Recent product launches focus on creating fast, high-converting experiences, empowering sales reps, ensuring efficient fulfillment, and boosting productivity through AI. Initiatives include the FastStore framework, ad network leveraging AI, data pipelines, and VTEX Shield security.

    6. Other Geographies Offsetting Argentina
      Q: Are other regions offsetting Argentina's challenges?
      A: Yes, other countries are performing well, notably Brazil, Colombia, Mexico, the U.S., and Europe. Brazil shows strong momentum in signing new contracts and integrating physical stores, which is encouraging for the year's outlook.

    Analyst Coverage

    Research analysts covering VTEX.

    Related Publications