Joint Stock Co Kaspi.kz Q2 FY2025 Earnings Call

Hello, everyone, and welcome to the financial results for the second quarter and first half of 2025 for Kaspi.kz. My name is Elliot, and I will be your coordinator today. I would now like to pass it over to David Ferguson. Please proceed. Great. Thank you, Elliot. Good morning, good afternoon to everyone who is joining us. Welcome to Kaspi.kz's Second Quarter and First Half 2025 financial results. I'm David Ferguson from Kaspi, joined on this call by Mikheil Lomtadze, CEO and Co-Founder of Kaspi.kz; Yuri Didenko and Tengiz Mosidze, deputy CEOs. So as usual, Mikheil will start the presentation, run you through an update on some of the key initiatives in the second quarter and first half of the year. I'll take you through the financial slides, and then we'll open the call up to Q&A. So on that note, over to you, Mikheil. Thank you.

Thank you, David. So let's move straight away into the updates. So for the second quarter, we had a good strong performance in spite of the still continuing environment of high interest rates. Our payments continue to perform well, and this is a very sizable business, as you all know our TPV is up 21%; revenue is up 16% and net income is up 19%. So we're pleased with the performance. Marketplace continues to show strong growth, GMV up 15%, revenue up 25% and net income up 13%. GMV, especially on the e-commerce side, shows continuous strong growth, except for smartphones which are up 31%. I will cover this later in the presentation. And then Fintech continues to generate strong volumes, up 17%, revenue is up 21% and net income is up 8% in spite of the high interest rates this year. Consumers continue to be engaged strongly, probably one of the leading businesses in terms of transactions per consumer with 75 transactions per month and revenue up 20% and net income up 14%. e-Grocery, a business we started around three years ago, continues to be our probably fastest-growing e-commerce business, up 57% year-over-year in terms of the GMV. We already have over 1 million consumers, 1.1 million at the end of the second quarter, generating 3.4 million transactions. In transactions, we're up 63%. And in GMV, we're up 57%. We continue expanding the grocery across the country and entering new cities. We are now in five largest cities of Kazakhstan, which is Almaty where we started, Astana, and we also opened this year in Aktobe and Shymkent and we're also expanding in Karaganda. So we have five cities now and we are expanding further in Astana and Almaty. We're adding more dark stores or logistic centers from which we're delivering to our consumers, and we are planning to open another two in 2025. Earlier this year, we introduced a fixed-term deposit at a higher interest rate. So here, we're giving you a bit of an overview of its performance. We're very pleased. This deposit has shown extraordinary growth of 207% in terms of the amounts and 263% in terms of the number of customers, almost KZT 160,000. It's performing pretty much as we planned. This product targets consumers who are saving for something. Apart from consumers shifting from our current deposit into the savings deposit because they have savings needs, around a third of the volumes is actually a new inflow, making it a very successful product. We truly believe that even though interest rates are high today, they will come down in the future, and we will continue acquiring consumers, who are transacting through our services. We also have been giving others the opportunity to leverage our payment network, Kaspi QR, which allows our merchant partners to accept payments not only from users of the Kaspi KZ mobile application but also from other market players. We've seen very good results. The volumes are up 128%. We processed 3.4 million transactions in the second quarter. Currently, we have five banks working with us. As you recall, we also integrated with Alipay, allowing our consumers to transact in locations in China or other areas where Alipay operates, as well as allowing partner merchants to acquire and pay for goods they might acquire in China and sell through our marketplace. We're encouraged by those trends and will continue to partner with other financial institutions going forward. It’s a decent result. Historically, as you know, we are building up our payment infrastructure and the use cases. This is how we actually started our e-commerce business and travel business. Just taking advantage of building additional value through specific vertical-related innovations. Here is an example of our entry into the restaurant business. We are scaling quite nicely; it's a very high growth, still not sizable in terms of the size because we just launched it, but quite good encouraging results. Net Promoter Score is very high from our customers and merchants. The functionality is straightforward; as a restaurant, waiters can spend less time bringing receipts and more time focusing on serving. As a result, restaurants get more sales, especially during peak times. From the consumer's perspective, you simply scan the QR code on the table and pay straight from our mobile application. One nice feature that is also part of the service is the ability to tip the waiter, which increases overall satisfaction. We're delivering value for everyone involved in this service in the restaurant itself, in the consumers, and for the waiter, making everyone’s experience more efficient. We've also been expanding the suite of our advertising tools for the merchants. This business is growing rapidly, and we launched a new service for our merchants that enables them to provide cash back bonuses directly to consumers—very simple to operate. We've received positive feedback from merchants. They can select promotional terms, products to promote, and track sales, lifts, and other metrics. This service is fueling our advertising services growth. Our ad revenue increased by 67% in the second quarter, one of the services we’re extremely pleased with in terms of trends and engagements, and there’s more to come. We also previously mentioned that growth in smartphones has been temporarily impacted by a requirement for registered smartphones. This legislation requires consumers to register their smartphones, or they can become inoperable. From our perspective, this supply and demand disruption is temporary, but we still acknowledge the growth in all other verticals in our e-commerce continues to be strong. Without smartphones, growth in e-commerce is 31%, underscoring how underpenetrated it is and highlighting the growth we have ahead of us. Vertical growth metrics like Beauty and Personal Care and clothing are growing at 63% and 54%, respectively, indicating more opportunities for innovations in specific verticals. We're not just observing; we’re actively introducing services for merchants and consumers to ensure peace of mind and understanding that phones must be registered. We developed services for merchants to verify smartphones before shipping through our e-commerce platform. Simultaneously, customers can verify their purchased smartphones, ensuring they’ve acquired registered models. We're tackling this from both sides—providing tools to merchants and customers. We believe that this demand is present and that it will rebound; we just need to be proactive. We're excited to introduce domestic tools in Kazakhstan. Kazakhstan is a beautiful country with numerous destinations to visit. We've introduced domestic tours targeting the promotion of the country's beauty. The functionality has been well-received. You can select a region and date, browse offers, read tour details, and easily pay through our mobile application—everything is confirmed seamlessly. This service has already seen strong adoption, starting from a low base but showing 10x growth in June. We’re excited about this new business launch. Now, I’ll pass it back to David regarding platform performance.

All right. Thank you, Mikheil. So just to quickly run through the financial performance of the respective parts of the business, starting with payments. Demand volumes remained robust and consistent throughout the first half of the year. Volumes are up 14% year-on-year in the second quarter, up 15% year-on-year for the first half. Faster TPV growth versus volumes is a function of higher ticket size. Inflation was up 21% year-on-year in the second quarter and up 22% for the first half. So once again, strong and consistent trends, with three key products—Kaspi Pay, B2B, and bill payments—contributing. Take rate has moved down due to a mix effect, which is consistent with what you’ve seen over the last couple of years. Essentially, as QR grows in the mix, it becomes dilutive to the take rate—this aligns with longstanding trends. Payments revenue rose 16% in the second quarter, so even with take rate dilution ahead of volume growth, we still saw healthy volume growth and revenue growth in liquidity. Strong top-line growth translates to the bottom line, with profitability growing faster—up 19% in Q2 and up 20% for the first half of the year. Moving on to the marketplace. The demand overall remains strong and consistent, with growth of 35% year-on-year in the second quarter and 36% for the first half. GMV growth is lower than volume growth. Although Juma, our promotional campaign, was successful, we ran fewer campaigns overall, which had an impact. Additionally, smartphone sales are down 17% year-on-year in Q2. This impacts GMV significantly, as smartphones have higher ticket prices, although it's less evident in volume terms. Despite this, we have seen strong take rate improvement, driven by advertising revenue, delivery revenue, and revenue from classifieds. The take rate has increased by 70 basis points year-on-year both in Q2 and for the first half. If you break it down by respective marketplace segments, e-commerce GMV growth was decent, with a rise of 22% year-on-year in the second quarter and 23% for the first half. Excluding the smartphone category, e-commerce growth in Q2 would have been 31% year-on-year. The take rate increased by 120 basis points in Q2 and 130 basis points for the first half. m-Commerce growth has been slower due to earlier mentioned challenges, but m-Commerce also benefits from structural trends as offline merchants shift online. Our unique business model enables us to capture both markets—this relationship with offline merchants is a significant competitive advantage relative to online-only sellers. The travel sector continues to deliver good results, with GMV growth of 16% in Q2, up 19% year-on-year for the first half, helped by international tours we launched about 18 months to two years ago. International tours are contributing to the ongoing take rate expansion. In fact, we saw 50 basis points of take rate expansion year-on-year in Q2 and 60 basis points for the first half of the year. We expect international tours to add growth and enhance the take rate in the second half of the year, alongside the contributions from domestic tours that Mikheil discussed. The marketplace's revenue growth was up 25% year-on-year in Q2, compared to GMV growth of 15%. For the first half, revenue was up 29% against GMV growth of 17%. Overall, we see a healthy revenue growth expansion for the marketplace, alongside a decent bottom line growth of 13% and 16% year-on-year for Q2 and the first half, respectively. Although ongoing trends suggest e-Grocery is growing in the mix though lower-margin, the results for Marketplace have been strong. Lastly, in Kazakhstan, Fintech origination remains healthy, with a year-on-year increase of 17% for both Q2 and the first half. Origination growth is primarily fueled by our merchant and micro business finance products, which continue to outpace consumer lending. The average loan portfolio shows robust growth at 33% year-on-year in both periods. This serves as a leading indicator for future revenue growth and demonstrates stable pricing trends, remaining flat year-on-year in Q2 and the first half. Deposit growth is also on the rise—18% year-on-year in Q2 and 19% year-on-year for the first half. June marked the strongest growth month year-to-date. Risk trends remain stable with no substantial fluctuations; cost of risk is at 0.6% for Q2, and NPL trends have shifted slightly but not materially. We expect these metrics to stabilize for the remainder of the year, while the lower coverage reflects growth in car loans, a collateralized product requiring lower coverage. Fintech origination showcases decent growth rates, stable pricing trends, and healthy revenue growth of 21% year-on-year in Q2, and up 19% for the first half. The higher interest rates do impact bottom line growth, as expected, with an increase of 8% in Q2 and for the first half of the year. However, deposits are fulfilling expectations and will assist us in funding more transactions in the future. And as interest rates potentially decrease, we anticipate Fintech will see significant benefits. That concludes the Kazakhstan part of the business; moving on to Hepsiburada in Turkey. Hepsiburada published its financial results last Thursday, so detailed financials are available on their Investor Relations website. In Q2, Hepsiburada showed a much improved performance against Q1, with volumes moving back into positive territory, up 7% year-on-year in Q2 versus down 2% year-on-year for the first half. Growing volumes alongside mid-single-digit ticket expansion translated into decent GMV growth of 16% in Q2 against a 1% decline for the first half. This GMV growth, when adjusted for inflation, reflects a recovery in the retail environment post-March. Company initiatives, particularly in the 1P side of the business, which grew faster than the 3P model this quarter, have contributed to this turnaround. Improvement in revenue growth, up 23%, along with the growth in 1P and delivery initiatives resulted in faster EBITDA growth of 42% in Q2, showcasing operational gearing as revenue improvements translate into stronger growth. Net income reported a negative underlying decline of TRY 243 million in Q2, a significant improvement relative to the TRY 434 million loss seen in Q2 of last year, but these losses should not be confused with our planned acquisition of a banking license in Turkey and the upcoming suite of product offerings. Overall, there are good underlying trends across the Hepsiburada business in Q2. With Kaspi KZ Q2 performance meeting our expectations, the trends align with our full-year guidance, as well as Hepsiburada performing in line with our expectations. Lastly, we reiterate our guidance for Kazakhstan as we move into Q3, which has started strong and is in line with our expectations. On the topic of capital returns, you all know we have consistently had and continue to have an extremely cash-generative business in our core market. We mentioned that this year is about making substantial investments in international growth, especially in Turkey, to ensure long-term growth. We've made good progress with the acquisition of Hepsiburada, from which the final payment was made in June. We’re on track to close the banking license acquisition in the second half of this year. As we approach 2026, we expect to provide capital returns to our shareholders in a manner similar to what we did between 2020 and prior to the Hepsiburada acquisition. Capital returns will involve both dividends and buybacks, with decisions made at the appropriate time. That wraps up the discussion on Kazakhstan and Turkey, and now I'll open the call for Q&A.

Our first question comes from Wayne with Citigroup.

This is Wayne, really. I just wanted to ask about what you're working on in terms of product improvements with Hepsi? Could you highlight to us which ones are the most important? And what we should expect as we progress through 2025 and 2026?

Mikheil, do you want to provide a bit of color on some of the projects that are ongoing at Hepsi, please?

Sure. Well, I mean, in general, I would say that our strategy is to introduce quite a lot of products which we have in our core market. The initial focus or priority is still to ensure that existing customers and merchants are extremely happy with the current services. Just to remind everyone, our business model and execution skills are based on the ability to innovate at unprecedented rates. If you look at the history of Kaspi, the innovations in marketplace, Fintech, or payments showcase this. For our strategy to be successful, it’s crucial that current customers and merchants feel more than just satisfied; they must be extremely happy. This will be the foundation for future success. Therefore, our main goal now is to elevate the existing services, especially within the e-commerce business. We are managing multiple projects that encompass everything from delivery to user experience and Fintech offerings, even if it’s relatively small at present. This year is primarily about quality and developing the services to match the standards we achieve in Kaspi KZ. The results from already implemented or ongoing projects have been promising, and we can observe growth acceleration in the second quarter. However, our focus is on quality rather than quantity this year. Our priority continues to be the core business, which is e-commerce and all services around it. Major innovations on the Fintech side will only come once we complete our banking license acquisition.

Got it. And then maybe a second one for me is, how do you think about your growth initiatives in Kazakhstan, the opportunities that remain there? And how should we think about the progression of the restaurant business or maybe any other verticals we should consider?

Well, the growth in Kazakhstan is still underpenetrated. Specific verticals indicate this; we showcased clothing and fashion growing at very high rates, around 60%. There's evident growth, and we are executing a strategy targeting specific verticals. E-Grocery represents a variation from electronics; travel involves another strategic vertical. We’re applying similar strategies across major verticals including restaurants, which is significant given household spending; we’ve created a simple functionality that brings immediate value. We estimate that every vertical we enter should ideally have a market potential in the range of $1 billion, consistent with travel and grocery. Our vertical-specific strategy emphasizes the importance of scale and transaction frequency. This approach guides our choice of verticals aimed at delivering value. Our business strives to connect merchants and buyers, sellers and buyers, restaurants with their customers while providing tech-enabled solutions that drive efficiency and value. Additionally, we can offer value-added services, including advertising. There are further enhancements we can introduce with restaurants. We’ve recently launched features like Scan & Pay and tipping functionality. Future value-added services could include customer reviews, marketing campaigns, loyalty programs, discounts, and much more. We have a wide range of services to develop, but we always prioritize simplicity and immediate value. We build on our strengths to deliver value, leading to excitement and satisfaction among both consumers and merchants. This has been our successful blueprint historically, and it's our methodology for each new launch.

We now turn to Gabor Kemeny.

This is Gabor from Autonomous. I have a few questions on Fintech. I believe your funding costs increased as expected, significantly in Q2. Maybe 13%, 14% blended average. Can you help us think about the outlook here? How do you expect your funding costs to develop if rates stay where they are? My other question would be on the asset quality. I noticed the uptick in the NPL ratio, and your quarterly provisions seem to imply a 2.5% provisioning rate. I believe you formally guided for 2%. Just some color on how you think about asset quality going forward. Finally, on the balanced capital deployment from next year between cash distribution and investments, can you help us scale the investments in Turkey beyond the banking business, the $300 million you indicated? And in relation to that, given the stock's valuation, at what valuation levels would you say that you would prefer to allocate a substantial part or most of your free cash generation to share buybacks?

All right. Gabor, I can make a few comments on that. So cost of deposit funding increased 70 basis points year-on-year in Q2. The second quarter reflects the full impact since we raised rates early in the quarter. The expectation is that the cost of funding increases will stabilize at around the 100 basis point level as we move through the year. Regarding asset quality, you should note that the first quarter included additional macro provisioning based on higher interest rates, distinct from underlying risk trends. Underlying risk is stable year-on-year, so we'll assess if macro provisioning remains necessary. On the third question regarding capital deployment, the bank acquisition is progressing, which is a critical advantage for securing a banking license promptly. As we move into 2026, we are fortunate to have a cash-generative core business that maintains our flexibility for balancing investments and capital returns. Although a specific payout ratio remains unclear, today's situation offers a compelling case for share buybacks, and we anticipate deciding these factors towards the end of the year or early next year.

We now turn to Darrin Peller with Wolfe Research.

Just real quickly. The smartphone impact, I know you called out the quantitative impact in the quarter. But number one, do you feel like the progress you're making on certain partners will help stabilize that? Should we expect that to be something that anniversaries in a couple more quarters? Or is it a gradual impact that progresses in any way? And then when thinking about the marketplace segment, I know you talked about less promotions around Juma. Just curious what the dynamics were and the thought process there. Putting it all together, I mean, sustainable growth, you have some puts and takes this quarter. Help us understand your updated thoughts on the recent growth trends within the segment over the next year or two.

Do you want to take that, Mikheil, on the smartphones and promotional?

Yes, sure. I mean, Darrin, in general, thank you for your question. We are attempting to illustrate growth in other verticals. For instance, e-commerce without smartphones has seen 31% growth, indicating healthy performance overall. Clothing and beauty categories are growing at around 60% year-over-year, showcasing potential for our marketplace business. Regarding the smartphone projections, we haven’t encountered a situation like this before, and we must focus on what is within our control. We’re introducing services that provide confidence to both merchants and consumers. Demand for smartphones exists; it simply needs to be addressed. Our focus is to develop mechanisms that help overcome the hesitations surrounding purchasing decisions. As we evaluate the smartphone sales, we still see growth in electronics excluding smartphones at 26% and in other categories like Home and Garden and Furniture at 35%, and clothing at 54%. There is ample opportunity for growth, and we are committed to enabling transactions for sellers and customers alike. We firmly believe that demand is present and will rebound, and our task is to facilitate that. We understand the obstacles consumers face in purchasing smartphones, but we’re taking steps to eliminate doubts and concerns.

And just on the sustainable growth rate and also profitability on Fintech. Can you help us better understand the platform with these rates? Given your success on deposit rates and in meeting deposit goals?

Well, yes, the basic observation is quite simple. In a high interest rate environment, we have to take this as an opportunity to acquire more customers who save and build up these capacities. Customers with savings are valuable for our products. In a high interest environment, that’s an invitation to enhance our consumer growth. While interest rates affect our expenses now, they will eventually decline, which means future profitability should follow the existing top line. We focus on cultivating a healthy user base with robust risk metrics. When rates come down, it will be a significant positive for profitability.

We now turn to Reggie Smith with JPMorgan.

I guess I just wanted to clarify the comments around the dividend and share repurchase potential. It sounds like you have capital commitments on the bank licensing side this year. But as we think about '26, can we assume a similar return of capital ratio? I believe it was around 60% in '24. Should we assume that going forward? You suggested that you would resume a similar type cadence, but I’m curious about the ratio, recognizing there may be some investment in Turkey—should we think about it being in the same range as '24 split across dividends and share repurchases or something less?

Thank you, Reggie, for your question. From our perspective, we’ve mentioned that we must prioritize investments for future growth. We aim to build a business that will sustain for many years, targeting 100 million users. Additionally, this year has seen substantial investment efforts. Moving forward, balance will be essential between capital distribution to shareholders through dividends and buybacks versus investments that are crucial for growth. There's no specific payout ratio, and we are still early in the discussions regarding that, but we will make decisions as we proceed.

Just to add, there will always be investments. Notable investments have been made in e-Grocery and also establishing the largest postage transport network in Kazakhstan. The business can achieve a balance between making investments and providing returns to shareholders.

Got it. Understood. And then just thinking about the banking license. Does this put you on par with competitors there? Or does it extend your capabilities beyond what some competitors in Turkey will have? Finally, as I think about the investments, what does that look like? Is it rewards to consumers? Can you elaborate on the nature of what investments might look like in Turkey?

Obtaining the license is a critical milestone that allows us to offer products to consumers and merchants on both the savings and lending sides. While we recognize competition, our focus remains on the quality of our services rather than just competing. Our expertise in Fintech is world-class, and the products we intend to introduce in Turkey will also meet those standards. Once we acquire the license, we’ll establish a framework for innovative financial services aimed at benefiting consumers and merchants. The services we offer are technology and machine learning-driven, greatly improving the lives of our customers. Building a bank requires diligence in compliance, risk management, and execution capabilities, but once we get the license, we will begin introducing these valuable services. We’re excited about expanding our offerings.

We now turn to Cihan Saraoglu with HSBC.

I have two quick questions. One is, in the past, you used to distribute dividends or announce buybacks on a quarterly basis. Based on your comments about resumption of dividends in 2026, shall we expect dividends to start in the first quarter of '26, or is this just broad guidance? That’s one. The second question is about Fintech bottom line, which seems to have grown on a Q-on-Q basis despite the increase in funding costs. Could you explain what mitigated the increase in funding costs beyond volume growth?

Okay, thank you for your question. Regarding dividends or buybacks and capital returns, we can't commit at this stage to a specific timeframe for quarterly or semiannual distributions. Our solid cash-generative business will weigh against the necessity for future investment and distribution. I am also a shareholder in the company, so the decisions I make are based on maximizing value for both the company and its shareholders. Concerning the Fintech sector, as we noted, increased volumes lead to higher revenues, which contributed to our profitability despite rising funding costs. Overall, as we witness volume growth in the Fintech space, revenue increases and thus profitability follow. If interest rates remain high, profitability may lag, but we are focused on the top line growth as it sets the foundation for future profitability.

That's all the time we have for Q&A today. I'll hand back to David Ferguson for any final remarks.

Okay. So thanks, Elliot. We have to wrap things up now as we have another meeting starting shortly. Thanks a lot for everyone's time today. Please feel free to get in touch with any questions. Thank you. Have a great summer, and we'll speak to you at our Q3 results. Thanks, everyone.

Thank you, everyone. Have a good week.

Thank you, everyone. This concludes today's webinar. You may now disconnect from the call.