VTEX Q2 2024 Raises FX-Neutral Revenue Growth Guidance to 18-20%
- VTEX increased its FX-neutral full-year revenue guidance to 18% to 20% growth, driven by strong performance from existing customers and robust momentum in new contract signatures that exceeded expectations in Q2.
- Significant improvements in gross margins, with overall gross margin reaching 74% versus the target of 75%, and subscription gross margin hitting 78% versus the target of 80%, ahead of the mid-term target schedule, demonstrating effective cost optimization and operational efficiency.
- VTEX customers outperformed the overall market during key sales events in Argentina, despite challenging macroeconomic conditions, showcasing the resilience and effectiveness of VTEX's platform in helping customers succeed.
- Ongoing volatility and uncertain macroeconomic conditions in key markets like Argentina: VTEX reported that consumption in Argentina worsened month-over-month until April. Despite some recovery in May due to the hot sales event, the country remains volatile with no clear trend towards stabilization or recovery. This continues to be a headwind of a couple of percentage points to VTEX's consolidated FX neutral year-over-year revenue growth. , ,
- High interest rates and cautious corporate budgets impacting growth: The company acknowledges that interest rates are still high, and consumer confidence is volatile across different countries. Corporations are more mindful of their budgets due to expensive money, which could affect spending on replatforming and new projects. VTEX is not expecting a recovery in consumer spending and is navigating a challenging environment, which may impact its growth prospects. ,
- Foreign exchange devaluation and tougher comparisons may pressure reported growth: VTEX mentioned that for the second half of the year, FX devaluation is roughly 6%, impacting revenue guidance. Additionally, they face tougher comparisons as last year's growth rates were higher in the second half, making it harder to show accelerated growth. This could pressure reported growth rates and affect investor sentiment.
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Updated Guidance
Q: What led to the revised growth and profitability guidance?
A: Strong performance from existing customers and robust momentum in new contract signings exceeded expectations in Q2, prompting us to increase our FX-neutral full-year revenue guidance. Our profitable growth strategy also enabled us to raise our non-GAAP operating income and free cash flow margin targets from high single digits to a range of high single digits to low teens. Our implied Rule of 40 has improved significantly, now in the high 20s to low 30s, demonstrating our financial discipline. -
Gross Margin Progress
Q: You're nearing your target model; what's next?
A: We've made significant improvements in our overall gross margin, reaching 74% versus our target of 75%. Subscription gross margin reached 78% compared to the 80% target. We're positively surprised by our progress and continue working towards our target model. We'll inform the market of potential next steps once we have more visibility. -
Argentina Impact
Q: Can you update us on Argentina's macro environment?
A: Argentina has been a couple of percentage points headwind to our consolidated growth. Consumption until April was more challenging than anticipated, worsening month-over-month. The hot sales event in May, similar to Black Friday, was better than expected, and our customers outperformed the market. Since then, consumption has slightly improved, but we don't see clear trends indicating stabilization or recovery. We expect Argentina to remain a couple of percentage points headwind to our FX-neutral year-over-year revenue growth. -
AI and SaaS Business
Q: How is AI affecting your SaaS business model?
A: AI will significantly impact commerce foundations. We believe profitability should be the first target, and AI will be instrumental in delivering it. AI can reduce customer service costs, potentially by 50%, and reinvent tools like search and frontend. We're leveraging existing AI models from infrastructure companies like OpenAI and Nvidia to deliver the best applications to our customers without deploying huge capital. This positions us well in developed markets as retailers seek powerful, convenient experiences for customers. -
Competitive Advantage of Lower TCO
Q: Is your lower TCO an opportunity amid market changes?
A: Yes, when market disruptions occur, value chains change, and companies seek new solutions. Our lower TCO becomes a significant advantage, especially with challenging interest rates. This can make a difference in the choice of future customers, particularly as they adjust to new technologies like AI-driven interfaces. -
Sales Cycle and Budgets
Q: Any changes to sales cycles or replatforming budgets?
A: We've seen stabilization in our sales cycle lengths. In 2022, sales cycles lengthened due to inflation and rising interest rates, but throughout 2023, they've stabilized and even improved in the second half. In 2024, sales cycles remain stable, neither a headwind nor tailwind to growth. Corporations are more mindful of budgets due to high interest rates, but our lower TCO and flexible solutions have been positively received by customers and prospects. -
Consumer Spending Expectations
Q: What consumer spending assumptions are in your guidance?
A: For Q3 and beyond, we're assuming similar KPIs to Q2. Our existing customers' GMV growth remains in the teens, outperforming the overall e-commerce market. Despite high interest rates and volatile consumer confidence, we're not embedding a recovery or recession in consumer spending into our guidance at this point.
Research analysts covering VTEX.