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    VTEX (VTEX)

    Q4 2023 Earnings Summary

    Reported on Feb 25, 2025 (After Market Close)
    Pre-Earnings Price$7.73Last close (Feb 27, 2024)
    Post-Earnings Price$8.47Open (Feb 28, 2024)
    Price Change
    $0.74(+9.57%)

    What went well

    • VTEX significantly outperformed the e-commerce market in GMV growth, recording a 25% FX-neutral GMV growth in 2023 compared to global e-commerce growth of around 9% and Latin America's 14%, indicating strong market share gains.
    • The number of customers paying over $250,000 annually increased by 34% to 126, representing roughly half of subscription revenue and driving approximately two-thirds of subscription revenue growth, showcasing success with high-value enterprise clients.
    • Operating income margin for existing stores improved from low 20s in 2022 to approximately 35% in 2023, demonstrating strong operational leverage and profitability potential; on a Rule of 40 basis, existing stores achieved 42%.

    What went wrong

    • VTEX's revenue growth guidance for 2024 is lower than previous years, indicating expectations of slower growth due to macroeconomic uncertainties and elongated sales cycles. The company is targeting an FX-neutral year-over-year revenue growth of 18% to 22% for the full year 2024, compared to 24% in 2023. This slowdown reflects persistent macroeconomic uncertainty and volatility in customers' GMV. ,
    • Exposure to currency fluctuations and economic instability in key markets like Argentina could negatively impact VTEX's revenue growth and margins. The 50%+ devaluation of the Argentinian peso is expected to result in a mid-single-digit percentage point headwind in 2024 USD growth and impact operating margins.
    • If VTEX experiences higher revenue growth, it may need to increase investments, which could pressure operating margins. The company indicated that in a higher revenue growth scenario, they might adjust investments accordingly, potentially leading to lower profitability despite higher revenues.

    Q&A Summary

    1. 2024 Guidance and Macroeconomic Environment
      Q: Given strong Q4 results, why does 2024 guidance seem conservative?
      A: Management explained that while they are starting 2024 in a more favorable position than 2023, there remains significant macro uncertainty, including a 30%-40% recession probability priced by the market. They anticipate GMV volatility due to customer uncertainties and mention that the 2023 guidance benefited from sales cycle stabilization which pulled revenue forward. Additionally, the 50%+ devaluation in Argentina will impact U.S. dollar growth and operating margins in 2024.

    2. Operating Margins and Growth Correlation
      Q: How will operating margins be affected if growth accelerates?
      A: Management stated they aim to maintain flexibility in adapting the company according to demand. If they see higher revenue growth opportunities, they may adjust investments to capture them, which could impact operating margins. Conversely, in a lower growth scenario, they would adjust expenses to improve profitability.

    3. Market Share Gains in Brazil
      Q: How did VTEX gain market share despite flat e-commerce growth?
      A: VTEX consistently outpaced the market with GMV growth of 25% FX-neutral and 30% in U.S. dollars. This was driven by adding new customers contributing $28 million in revenue and strong same-store sales growth of 19% in USD and 15% FX-neutral. Integration of physical stores into the digital commerce experience led to higher conversion rates and expanded inventories.

    4. Capital Allocation and Share Repurchases
      Q: Will there be more share repurchases or other capital uses in 2024?
      A: Management indicated they have completed 100% of the 2023 buyback program and currently have no active plan in place. They will balance organic growth plans, M&A opportunities, and potential buybacks in the best interest of long-term shareholders, likely prioritizing them in that order.

    5. Customer Growth and Store Expansion
      Q: Why is growth maintained despite adding fewer stores?
      A: While the total number of stores increased by 4% to 3,500, the number of customers paying over $250,000 annually increased by 34% to 126 customers. These larger customers accounted for about half of subscription revenue and two-thirds of subscription revenue growth. The focus is on acquiring larger customers, which significantly impact revenue.

    6. Net Revenue Retention (NRR) Outlook
      Q: Is there a target for long-term sustainable NRR?
      A: NRR depends on e-commerce growth and performance versus the market. Historically, NRR was around 105% for the past two years and 107% in the latest year, aided by inflation adjustments and upselling existing customers. Future NRR will be driven by GMV growth and potential upselling of new products and services.

    7. Pricing Environment and Competitor Impact
      Q: Has the pricing environment changed, and does Shopify's price increase create opportunities?
      A: VTEX maintains a stable pricing strategy with a take rate that decreases as customers grow. They focus on long-term relationships with predictable pricing. While Shopify's price increase doesn't significantly affect VTEX's positioning, it may provide room for future price adjustments.

    8. Latin America Growth Potential and Argentina Impact
      Q: What is the growth outlook for Latin America given recent challenges?
      A: Latin America remains a region with significant potential for VTEX. Despite macro uncertainties and the Argentina devaluation, VTEX is optimistic about opportunities in markets like Mexico and continued e-commerce penetration. Increasing B2B demand is also creating further growth opportunities.

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