The Gross Margin Slide That's Hammering Zenvia

Today I’m looking at Zenvia (NASDAQ: ZENV). They are a Latin American customer experience platform serving 12,000+ businesses with AI-powered communication tools across SMS, WhatsApp, email, and voice.

It's a good case study in revenue mix, margin compression, and trying to differentiate a product that's becoming more and more a commodity.

Here's what caught my attention:

• First Latin American SaaS company to IPO on NASDAQ in 2021

• Stock down 95% from IPO price (ouch)

• Just announced they're laying off 15% of staff and divesting half their business

• CEO personally invested $9.7M of his own money to keep things afloat

The quick snapshot:

• What they do: Customer experience platform for Latin America (think Twilio but for WhatsApp-obsessed Brazil)

• The good: Exclusive Google RCS partnership in Brazil, official WhatsApp provider status, 12,000+ customers

• The bad: $186M revenue but still losing money, competing against Twilio's $4B war chest

• The ugly: 69% of revenue comes from commodity SMS reselling with 26% margins (down from 36%)

Why their margins are in the toilet:

• Their CPaaS business is basically buying wholesale SMS and marking it up slightly - it's a race to the bottom

• Their "good" SaaS business saw margins crash from 68% to 56% because they chased enterprise deals

• Q4 2024 was rough: gross profit down 60% after getting hammered by SMS pricing changes

• They literally chose volume over profitability to keep the lights on while pivoting

As AI proliferates, I'm afraid more businesses with unique product offerings may start to get bucketed into the commodity offering classification in customer minds. Something to keep an eye on!

With that, I'll see you tomorrow.

-Nick

TL;DR

• What they do: Latin America's leading customer experience platform serving 12,000+ businesses with AI-powered communication tools across SMS, WhatsApp, email, and voice

• Key insight: First LATAM SaaS company to IPO on NASDAQ, now pivoting from dual CPaaS/SaaS model to pure-play software after announcing 15% workforce reduction and CPaaS divestiture

• Market position: Dominant in Brazil with exclusive Google RCS partnership and official WhatsApp provider status, but facing margin pressures from global competitors

• Financial reality: $186M revenue in 2024 but persistent losses; achieved first positive EBITDA in 2023 but high debt servicing costs force strategic restructuring

• Entrepreneurial lesson: CPaaS is essentially a commodity business - they're reselling SMS/messaging capacity from telecom carriers. If your product is viewed by customers as a commodity, your margins will likely suffer (as we've seen here).

The 30,000-Foot View

Zenvia operates a dual business model combining Communications Platform as a Service (CPaaS) for message delivery and Software as a Service (SaaS) for customer experience management. The company processes billions of messages annually across SMS, WhatsApp, RCS, email, and voice channels, with Brazil representing their core market.

Revenue Mix: CPaaS (69.2%) vs SaaS (30.8%) in Q3 2024, though the company is pivoting to focus exclusively on higher-margin SaaS Key Stats:

• Market Cap: 86 million (down 95% from IPO)

• TTM Revenue: $186 million

• Gross Margin: ~36% (2024)

• Net Income: -$30 million (2024)

• Employees: ~1,000 (pre-layoffs)

• Industry: Customer Experience Software

Company History

2003 - Founded in Porto Alegre garage by Cassio Bobsin and Victor Knewitz 2014 - First institutional funding: $13.8 million from BNDES after 11 years bootstrapping 2020 - Acquired Sirena ($30M) for WhatsApp expertise and LATAM expansion 2021 - IPO on NASDAQ at $13/share raising $150M + $50M Twilio investment; acquired D1 (~$100M) for data capabilities 2021-2022 - Acquired SenseData and Movidesk (~$110M combined) for customer success and service desk 2024 - Launched Zenvia Customer Cloud unifying all solutions; CEO invests personal $9.7M 2025 - Announced strategic pivot: 15% workforce reduction saving $5.8-6.8M annually, divesting CPaaS to focus on SaaS

Show Me the Money

Stand-out Financial Features:

• Revenue grew 57% from 2021-2024 but profitability remains elusive

• SaaS gross margins declined from 68.2% (2022) to 56.2% (2024) due to enterprise competition

• First positive normalized EBITDA of $14.8M in 2023, improved to $20.4M in 2024

• High Brazilian interest rates (18%+) create significant debt servicing burden

• Q4 2024 saw 60% gross profit decline due to $5.4M SMS cost adjustments

• Total debt ~$59.6M ($19.4M bank debt + $40.2M earnouts) restructured in Feb 2024

• Pro-forma leverage of 2.0x expected by end of 2024 based on EBITDA guidance

• Cash position improved from $12.4M (end 2023) to $22.7M (Q3 2024)

• 2024 EBITDA guidance of $23.3-27.2M missed; actual ~$20.4M

Financial Data

The N.O.O.B. Nine — Competitive Powers

The Nerd Out on Business Nine is made up of Hamliton Helmer's famous "7 Powers" of competitive advantage (Scale Economies, Network Economies, Counter-Positioning, Switching Costs, Branding, Cornered Resource, and Process Power) combined with two of my own (Data Flywheel and Distribution Advantage).

Average Score: 2.8/5 - Zenvia has formidable regional moats but faces scale disadvantages competing globally.

Memorable Marketing

Zenvia's marketing philosophy "By Humanz. For Humans" emphasizes their human-AI hybrid approach. Key campaigns include:

Zenvia Customer Cloud Launch (2024)

• Unified all acquired solutions under single platform

• Generated $35M in first quarter

• Positioned as "Complete AI solution to sell more and serve better"

• Targeting 25-30% growth in 2025 with 68-70% gross margins

WhatsApp Business Dominance

• Leveraged official provider status against unofficial integrations

• Click to WhatsApp Ads converted social engagement to conversations

• Capitalized on Brazil's 79% WhatsApp penetration

Partnership Expansion

• Exceeded goals with 30+ franchise partnerships in H1 2024

• Industry-specific solutions for financial services, retail, healthcare

• Localized approaches for Brazil, Argentina, and Mexico markets

AI Uses & Opportunities

Current Implementation:

• Generative AI Chatbot launched June 2024 using OpenAI technology

• Multiple AI agent types: support, analytics, edge, and content creation

• Features include ticket analysis, sentiment identification, writing assistance

• One client reported 28% higher satisfaction with AI vs human agents

Future Opportunities:

• Cost Reduction: Automated customer service, process optimization

• Product Enhancement: Predictive modeling, voice AI integration, personalization

• New Revenue: AI-as-a-Service offerings, industry-specific models, premium AI features

Zenvia's early AI adoption in LATAM positions them as regional innovation leader, though resource constraints limit competition with global players' AI investments.

Bumps in the Road

• Financial Pressure: 18%+ Brazilian interest rates create unsustainable debt servicing costs

• Margin Compression: CPaaS commoditization and SaaS enterprise competition squeeze profitability

• Integration Challenges: Multiple acquisitions created complexity; earnouts reduced from $86.2M to $15.7M

• Customer Churn: Notable client base reduction in both business segments

• Global Competition: Twilio, Infobip, and other well-funded players entering LATAM

• Market Maturity: LATAM companies still view customer experience as "nice-to-have" not "must-have"

Your Swipe File

Positive Takeaways:

• Regional specialization beats global generalization - Deep local knowledge, regulatory expertise, and cultural alignment create defensible moats even against larger competitors

• Platform unification drives value - Consolidating multiple acquisitions into unified Zenvia Customer Cloud unlocked $35M quarterly revenue

• First-mover advantage compounds - Early LATAM SaaS IPO on NASDAQ created credibility competitors cannot replicate

Cautionary Lessons:

• Debt kills optionality - High interest rates in emerging markets can quickly turn growth capital into existential threats

• Margin matters more than revenue - Growing top-line while margins compress is unsustainable; focus on unit economics from day one

• Integration before acquisition - Zenvia's reduced earnouts show the cost of moving too fast with M&A

• Know when to pivot - Divesting CPaaS after years of investment strategic courage but earlier recognition might have preserved more value

• Global competitors eventually arrive - Regional dominance provides time advantage but must build sustainable differentiation before well-funded players enter