Creditas, one of Brazil’s largest lending unicorn companies, posted a net loss of 209 million reais ($40 million) in the fourth quarter of 2022. The result marks an improvement over a 363 million reais loss in the year-ago quarter, as the company gradually works toward breakeven.
The company is one of the most prominent digital lenders in the country. It caters to individual borrowers in Brazil, offering loans grounded on collateral. The portfolio reached 5.8 billion reais, or $1.1 billion, by last year. New loans, however, decelerated sharply as the company adopted a cautious approach due to inflation.
Still, the company reported revenues north of 1.8 billion reais throughout the year, or $340 million. That is a 118% increase compared to the year-ago period. It also booked a 1.1 billion reais loss in the entire year, or roughly $200 million.
High-interest rates and inflation exacted a toll last year on Brazilian fintechs, many of which were led to cut costs and downsize as funding dried up. Moreover, Brazil was one of the first countries to undertake ferocious monetary tightening, raising the interest rate from 2% to 13.75% annually.
In the earnings report, the company acknowledged a more challenging scenario for lending. However, Sergio Furio, CEO and founder was confident that its approach to lending through collateralized loans would allow the startup to weather through the more complex environment.
Breakeven in sight
The company expects it will reach breakeven by the end of this year. It is actively working on repricing its portfolio with higher rates while reducing costs. It has consistently delivered decreasing losses in the last five quarters.
“We continue executing on our plan-to-profitability designed a year ago,” the firm said in a release. “We are now originating loans with the highest projected margins we have ever seen to bring our gross profit back to normal levels.”
Pre-fixed loan pricing has continued moving up the ladder to 56% from 32% in late 2021.
The company bought a bank in Brazil last year to cut down the dependency on markets for funding. Creditas wants to grow deposits, which are more reliable and less expensive than market sources. The acquisition, however, is still in the process of approval by the Brazilian Central Bank, Creditas said.
Sunsetting auto business to reduce cash burn
A year ago, SoftBank-backed fintech Creditas reached a $4.8 billion valuation in an investment round. According to Crunchbase, the company has received $1.1 billion in funding.
Still, with far fewer funding sources on the block right now, Creditas is cutting down costs. It said it has “significantly reduced” hiring in the past year. This week, it announced it was downsizing its car business, Creditas Auto, to minimize burn.
The firm is reportedly closing its repair center and three of the six stores. It pretends to outsource much of the services now and become a broker.
“We announced a migration of Creditas Auto towards a more asset-light business model to reduce capital expenditures and cash consumption,” the company said. This will result in a “significant reduction” in cash consumption due to eliminating car inventory and facilities required.
Positive fintechs report
Other fintech lenders have also reported results, with most of them showing improvements on a year-over-year basis.
Brazilian digital bank PicPay, the financial arm of the J&F group, reversed the negative result of $98 million suffered last year by reporting a net profit of $3.8 million — the first registered profits since its foundation — anticipating in such a manner the company’s break even.
Nubank, the largest digital bank in Brazil by the number of customers, also reported breaking even in the last quarter. The digital lender’s adjusted net income surged to $113.8 million in the fourth quarter from $3.4 million in the year-ago period.
