Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• PagSeguro Digital Ltd (NYSE:PAGS) achieved a record high net income of BRL 2.3 billion, marking a 28% growth compared to 2023.
• The company reported a 32% year-over-year growth in Total Payment Volume (TPV), reaching BRL 518 billion.
• PagSeguro Digital Ltd (NYSE:PAGS) successfully executed over 50% of its $200 million buyback program, enhancing shareholder value.
• The banking segment showed impressive growth, with revenues increasing by 58% year-over-year, driven by interest income and service fees.
• The company maintained a strong return on average equity of 15.2%, reflecting a 198 basis points increase over the previous year.

Negative Points

• The company faced challenges due to higher interest rates, which impacted financial costs and required strategic repricing.
• Despite the growth, there was a reduction in active merchants, primarily from the nanomerchant segment.
• Transaction activities revenue decreased by 8% year-over-year, suggesting a lower take rate.
• The cost of funding remains a concern, with efforts needed to further reduce it from the current 90% of CDI.
• The macroeconomic environment, including high inflation and interest rates, presents ongoing challenges for PagSeguro Digital Ltd (NYSE:PAGS).

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with PAGS.

Q: Can you provide more details on your credit portfolio strategy, particularly regarding non-collateralized loans and the impact of transaction activities revenue? A: We are focusing on growing our credit portfolio with secured loans, which have shown a healthy 36% year-over-year growth. For non-collateralized products, we are growing at a pace appropriate for current market conditions. Regarding transaction activities revenue, there was an 8% decrease year-over-year, but financial income increased by 51%, reflecting a reclassification of taxes between transaction activities and financial income. Overall, total revenue grew 18% year-over-year. (Respondent: Unidentified_7)

Q: How does your EPS guidance for 2025 relate to your buyback program, and what are your expectations for TPV growth? A: Our EPS guidance for 2025 does not factor in the buyback program; it is based on the same number of shares as of December 31, 2024. We expect to continue growing TPV faster than the industry, with a focus on gross profit rather than take rates. The industry growth for cards is expected to be between 9% and 11% in 2025. (Respondent: Unidentified_7)

Q: Can you elaborate on the expansion of TPV, particularly in the LA segment, and the impact of repricing? A: The LA segment, which includes e-commerce and cross-border transactions, grew 45% compared to Q4 2023. We expect this trend to continue in 2025. Repricing is a dynamic process, and we have already implemented some repricing in 2025. We will continue to adjust prices as necessary, considering the economic environment and interest rate changes. (Respondent: Unidentified_7)

Q: What is your approach to capital allocation given your high capitalization ratio, and how does repricing impact gross profit? A: We are managing capital allocation to balance current needs and long-term opportunities, such as credit growth. Our Basel index decreased from 33% to 28% in 2024, and we are focusing on buybacks rather than dividends due to current market valuations. Repricing and cost of funding reductions are both important for gross profit, but we do not disclose specific impacts from each. (Respondent: Unidentified_8)

Q: How do you plan to manage cost of funding in 2025, and what are your expectations for the SELIC rate? A: We expect the SELIC rate to be around 15% by the end of 2025. We aim to manage cost of funding by adjusting yields on CDs and diversifying funding sources. Our deposits franchise grew 31% year-over-year, and we reduced the cost of funding from 94% to 90% of CDI. (Respondent: Unidentified_7)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.