17 Qs of Kaspi
The Culper Report - 17 Kaspi Quarterly Reports - The Miracle of Juma
This is a continuation of my last post about Kaspi.
It has been almost 2 months since Culper published a short report on Kaspi alleging the company of misleading investors about its business with Russian nationals. The report didn't claim that any illegal activity took place. It only pointed out that Kaspi opened accounts for Russians, allows Russians to trade on its marketplace, and had Raiffeisenbank Moscow as a correspondent bank among other accusations. Overall, it tried to capitalize on the anti-Russia sentiment and it was successful in generating a decent drop. The stock price declined to $90 - 25% from the September 18 close. Today, only 8% remain to close this gap.
Q3 2024 Results
Meanwhile, Kaspi released Q3 results.
Marketplace, which started out as the newest and smallest segment of the company, grew by leaps and bounds, surpassing Payments in Q3 2023. It grew 108%, 96%, and 43% YoY in the 3 Qs of 2024. Management is trying to explain the low number in Q3 with the timing of marketing campaigns. We will have to wait until the end of the year to see if this was the case. It might as well be due to the maturation of the Marketplace business. There is no point comparing Q2 to Q3 either, because Juma took place in June.
Payments scored another 25% YoY Q after it did the same in Q1. Pretty much the same goes for the most mature Fintech business - up 24% YoY.
Net income paints a similar picture. Marketplace growth has distinctly moderated in Q3 - 14% vs 68% in Q2 and 76% in Q1. Payments - up 25%. Fintech - up 15%.
The Long View
Having reviewed the latest quarterly results, I decided to take a deeper look in the previous 16 quarters for which Kaspi provides statements on its website.
But first a bit of context for those not familiar with Kaspi. It started as a traditional bank in 1991 only to evolve into the Kazakh OS it is today. In the process, it established the largest e-commerce marketplace (launched in 2014) and the dominant payments provider (launched in 2012) in Kazakhstan, surpassing and bypassing Visa and Master, while the traditional bank transformed into a fintech.
Kaspi is often compared to WeChat or Alibaba+AliPay in China and MercadoLibre in Latin America. In the US, it would equal eBay+PayPal+Bank. I am not aware of any company quite like Kaspi anywhere else in the world.
How did it get there?
In the following paragraphs, we will take a look at various important metrics showcasing Kaspi's development over the past four years - from Q3 2020 to Q3 2024.
Engagement
First, Kaspi often mentions the industry-leading daily engagement of the Kaspi.kz Super App of 65%, meaning that 65% of the monthly app users engage with it daily.
Once the app had a solid base of customers and merchants, and was part of the daily lives of Kazakhstani people, the company focused on maximizing transaction intensity.
The average monthly transactions per active customer grew 3x in the 4-year period displayed. This is a phenomenal accomplishment. Customers transact on the Kaspi app more than 2 times per day on average.
Volumes
The gross transaction value of the goods and services sold on the Kaspi Marketplace is also mind-blowing.
GMV has grown from a little under half a billion dollars to over 3 billion in just 4 years. In other words, doubling 2.7 times. This translates to a 60% CAGR.
A similar chart describes the Payments business segment.
And almost the same for the Fintech segment.
Kaspi always had a strong deposit base and lately it has been doing a great job of lending more of it out. The current loan-to-deposit ratio is a very healthy 88%, and it has been fluctuating in the 80-90% range over the last 3 years.
BNPL, and lately Merchant & Micro Business Finance, have been the fastest growing lending products recently. I am a bit of a sceptic on BNPL loans. However, it is the fastest growing loan category in many markets. Surprising to me, Sweden leads with almost 25% of e-Commerce payments completed via BNPL. The global average is 5%.
In any case, non-performing loans are still at a manageable 5.6% percent. For some context around NPLs in Kazakhstan's banking system, you can refer to my previous articles about Kaspi and Kazakhstan.
During the global financial crisis, Halyk Bank's non-performing loans ballooned - from 0.9% in 2007 to 19% by the end of 2009 - as the economic slowdown and the depreciation of the Kazakhstani tenge led to difficulties for borrowers in repaying their loans.
— From What Is Best in Life
In the last 7 years, Kazakhstan's banking system has done a great job of working through the pile of non-performing loans accumulated during the GFC.
...
Compared to Greece, Kazakhstan did a great job. NPLs reached only 20% and remained at this elevated level only 5 years. Today, the NPL ratio of the Kazakh banking system is down to 3.4%. For comparison, the USA, UK, and Germany are at around 1%.
— From Kazakh OS
On the deposits side, Kaspi recently launched a dedicated Business Deposit for merchants, adding another reason for merchants to use its platform.
In summary, all three engines have been delivering strong results, but Marketplace stands out as it was the last one to start but very quickly surpassed Payments in terms of revenue and almost caught up with Fintech in terms of income. This is what happens when you have several flywheel type of businesses feeding off of each other. The bank provided the customer base into which to launch the payments service. Then, the relationships with merchants enabled Kaspi to build a proper marketplace. Finally, coming full circle, the marketplace made the app more valuable to both customers and merchants, further reinforcing the other two business segments. Flawless execution by the Kaspi team and definitely one that will be studied in classrooms.
Business Segments
Looking at the 3 main business segments, it is easy to notice the transformation from predominantly a bank to the perfectly balanced bank+payments+marketplace. In Q3 2024, Kaspi generated $1.35 billion revenue, 51% of which came from the Fintech business while the rest was almost equally split between Payments and Marketplace.
Looking at net income, which hit $570 million in Q3, the split is almost into perfect thirds. Payments is slightly above - at 37.4%. Marketplace is a bit under - at 30.6%. And Fintech is almost exactly a third - at 32.1%.
This balance that the company has achieved is quite astonishing, even more so for a business that started out as a traditional bank. Not even mentioning the 42% net margin.
Take Rates
Now, let's review take rates starting from the bottom.
Payments has maintained an unshakeable 1.2% take rate. This small percentage amount is deceptive. Firstly, the volume in the Payments segment is huge - $20.4B in the last quarter only. So, even a small percentage makes for a considerable dollar amount as witnessed by the bottom line of $213M in Q3. Second, a take rate of 1.2% is more or less in line with the take rate of the major card processors, which varies in the 1-3% range.
Travel, which is one of the latest additions to the platform, launched on December 2020, has shown considerable progress in terms of both take up and take rate. It went from 2.9% to 4.5% take rate thanks to Kaspi's ingenuity. First, they started offering higher margin rail tickets. Then, they came up with packaged holidays, which were a real boon for shareholders - with a 8-8.5% take rate.
By the way, the Travel business is still not large enough to be in its own reporting segment, so it is lumped together with e-Commerce and m-Commerce under the Marketplace business segment. Speaking of which, both have shown impressive improvement in take rates. The improvements in both segments were supported by Kaspi’s focus on expanding value-added services and the successful execution of promotional campaigns, particularly Kaspi Juma events, which helped drive both volume and take rate improvements across the platform.
The first value-added service is the Kaspi Postomat. The company officially launched its network of self-service lockers for free delivery in March 2022. Postomat as percentage of deliveries grew from 8.8% in Q1 2022 to around 40% in Q4 2023. In just 2 years! That's insane!
The other significant value added service is brand advertising. It allows brands and their agencies to run campaigns for their overall brand, for a specific product, or for merchants selling their products.
These value-added services were made possible thanks to Kaspi's amazing super app and lately, thanks to the promotional efforts put into Juma — a nationwide shopping festival organized by Kaspi that offers significant benefits to both consumers and merchants. Think of it as Black Friday / Cyber Monday in the USA or Singles Day in China. As you can imagine, it is the time of year when people go all out on consumer electronics, clothing, accessories, and home improvement goods.
Juma offers:
Up to 24 months interest-free buy-now-pay-later financing
Extra Kaspi Bonus points
Free delivery on popular everyday items
Access to best possible prices on a wide range of products
You can see how Kaspi leverages all its advantages in the Juma event. Free delivery via its Postomat network. BNPL financing from its Fintech arm. And, discounts from its wide network of merchants. The event serves as a significant boost for small and medium-sized Kazakhstani businesses, helping them increase both their sales value and volume.
Inflation and Exchange Rate
Finally, since some of you may ask, I am including the changes in the CPI and the KZT/USD exchange rate over the period. After all, Kazakhstan is a developing country. Inflationary pressures and currency devaluations are par for the course.
It is worth mentioning though, that Kazakhstan is one of the most developed economies among Central Asian countries. It accounts for 60% of Central Asia’s GDP, primarily through its oil and gas industry. Plus, the country has the highest Human Development Index ranking in the region — 0.825 (ranked 51 out of 189 countries).
You can read more in my post about Kazakhstan.
The CPI has been climbing by 11.6% per year. However, this average includes the highly inflationary period 2022-2023, when inflation averaged 14% and peaked at 21%.
The chart below shows inflation over the past 10 years. You can see that bouts of double-digit inflation are not all that rare. But also, note that it has been brought under control in 2024. It is still a bit elevated compared to the 2017-2021 period, but not by much.
On the currency front, the situation also looks quite tame at the moment.
The tenge has lost some 10% over the 4-year period. Not bad, and definitely a huge improvement compared to the not-so-distant past, when the country witnessed this:
Kazakhstan, being heavily dependent on oil exports, was severely impacted by falling global oil prices. The government had to adjust its budget multiple times in 2015, from $80 per barrel to $50, and finally to $30-40
Losing 40% of the value of your tenge in just half a year is not exactly conductive to a great shopping or saving experience for the average Kazakhstani citizen. This sort of destruction has to be avoided at all costs. Hopefully, lessons have been learned and it won't happen again on this scale.
Conclusion
Kaspi was recently hit with a short report from Culper regarding Russian business connections, causing a temporary stock price decline, but it has largely recovered. Despite concerns, Kaspi’s Q3 2024 results show continued growth across all segments.
The metrics reviewed in this post confirm Kaspi’s successful transformation from a traditional bank to a balanced three-segment business with strong network effects. Although it is showing some signs of maturation in these segments, the company also demonstrated that it can still innovate by creating value-added services, such as Postomat, brand advertising, business and micro financing, and the Juma shopping festival. All these have helped maintain high growth and take rates, and drive customer engagement.