Currently down around 21% from yesterday’s close.
I’ve been looking for info and found this: https://twitter.com/saxena_puru/status/1118823300472246273
No conclusions from me yet, and I’m not using this bit of info for an instant buy/sell decision. I don’t know the above source of info we’ll enough to be at that point. Need to understand everything more before deciding where to go from here.
Interested to see what insights others may have. I’ll post more info/reaction if I have any.
-ElonFeeNix
I had a buy order on STNE that was triggered following this FUD event. On the face of it, it looks very concerning. So, merchants with an annual turnover of BRL30 million per annum will receive free T+2 settlement from Rede.
However, I have done a little digging. I have observed the following:
The average turnover per Stone Co. client is BRL1.2 M per annum. It would be great to have the medium figure, but thats all I can determine.
In Brazil, a business with a turnover below BRL 3.6 M is considered small business. Medium sized businesses are up to a turnover of around BRL 20 M pa (sourced from the Brazil Business website).
So, in its current form, it would appear Rede will have no direct impact on Stone Co. customers, as the vast majority are not large enough to benefit from this deal. It is however, demonstrating competition is intensifying in this market - It is good for Brazil and the local economy. I think it is prudent to factor in a contraction in profit margins over time.
I will continue to hold, as I think the risk vs return ratio is quite attractive at these prices. I have revised my revenue growth rate for 2022 to 42%, and falling away over time, with no margin expansion / operational leverage. Still looks attractive at these prices.
CORRECTION!
THE DEAL APPLIES TO BUSINESS WITH A TURNOVER UP TO BRL30 MILLION, NOT OVER.
This is a big deal - will ned to assess it
I had this one on my watch-list. Having lived in Brazil, I’m somewhat ambivalent about investing there. On the one hand it’s a country with extraordinary economic potential. But on the other hand there are few countries where the cost of doing business is as high. That is mostly due to corruption and bureaucracy. And the two often go hand-in-hand. Currently the country is going through quite a dysfunctional phase.
This news in particular is not easy to dissect. My first knee-jerk response is to dismiss this news and see it as a buying opportunity. Banks in Brazil are so enormously inept and inefficient, that it’s hard to see them compete technologically with a nimble newcomer.
But then big banks have connections… and in a country like Brazil, connections can be more powerful than a technological edge.
Next week I have some Brazilian visitors. I’ll try to hear them out on the topic.
Mark
Official response from the company to yesterdays news
https://investors.stone.co/news-releases/news-release-detail…
Thank you neville06.
Worth reading the entire article.
We have seen banks in Brazil fined for anti-competitive actions as a result of their attempts to gain market share through untransparent pricing strategies. That´s how some large players in the country have been doing business for years. For example, Itaú paid fines in the recent past for anti-competitive measures that tied offerings together in an attempt to win new business. As noted in our prospectus, it was in 2010 that the Central Bank of Brazil and Brazilian antitrust authorities implemented a series of initiatives to create a regulatory framework aimed at fostering a more open and competitive environment. We designed Stone to disrupt the incumbents model and their practices by providing differentiated offerings to our clients through a strong client-centric culture as well as fair and transparent rates.
At This Moment, The Latest Incentive Offers from Competitors Don’t Change Our Strategy
-Gaurav
Thanks, neville.
Good to read the CEO’s response, seems they’ve run across similar threats before (although each case will be different) and seems they have a good plan to continue to innovate and create value for their customers (and shareholders, hopefully) to keep growing.
I was thinking the drop was more FUD based than reality based as nothing has been proven yet, numbers haven’t changed, share hasn’t been impacted, etc. Very reminiscent of when Amazon announces they’re going into a particular business, they seem to be able to compete against old guard companies very well, but maybe the new, nimble, and innovative tech companies are harder to disrupt as a lot of their customers may well be tired of the old businesses (like Oracle/Mongo). Regardless, I went ahead and bought another batch yesterday in the $25’s as it’s still only a 3-4% position and I’d wanted more and this large drop seemed like a good reward to risk to me. I think the stock will slowly climb back up from this level in the short to medium term. Long term, if this does turn out to be a hit to their business, hopefully we’ll be able to see that coming, too.
Hi all,
Thank you all for your feedback. I was very concerned about this news, as it looked to be a huge game changer. However, I did some digging:
Financial revenue for Stone Co. is approximately 0.9% of customer TPV. I don’t think customers are going to jump ship, with all that entails for these perceived savings.
Plan costs are not very transparent, with financing costs, rental charges, and transaction charges to consider. For example:
Rede website have these charges (caution - this is translated, so I may have misinterpreted them):
debit cards: 2.69 % - 1 day payment.
credit cards: 5.39 % - 2 working days
These appear to be transaction fees, which seem exorbitant to me. The transaction fees could be interest rates, but they appear to be way too low to be interest charges.
So , looking at the Rede announcement, it may be a red herring, when considering the overall cost of the rede service to businesses.
If anyone has more information on Rede’s transaction fees, please respond. We have a few days to confirm this is just FUD or is a real issue.
Sean.
Just found a Reuter’s article about Itaú claiming that charging no fees would be profitable.
https://www.reuters.com/article/us-itau-unibanco-hldg-cards/…
Anything I say about Itaú’s claims would purely be opinion from my end (like saying the amount of extra business they would have to attract would have to be enormous to offset loss of revenue from zero prepayment rates), but I think the really interesting information comes at the end:
On Thursday, Brazilian antitrust watchdog Cade sent Itaú a request for more information on the decision to cut interest rates, asking for an answer by May 3. Magalhães declined to comment on the matter.
Looks like StoneCo was on to something when they claimed “potential anti-competitive actions.” We don’t know what’ll come from this, but we should definitely keep a close eye on this.
CloudAtlas