Stone Co (STNE) Reports Q3 earnings

Revenue up 62% year on year

Profit up 111% year on year

TPV up 50% yoy.

Take rate stable at 1.88%

42% growth in software subscribers over quarter.

68 700 clients added in quarter (16% growth over quarter). New customer acquisitions will help support ramp up of Q4 earnings, which is seasonally, the busiest quarter for Stone Co.

Credit strategy – Number of clients and disbursements grew 280% over quarter. Stone Co. will outsource lending risk after pilot stage.

Banking Strategy – Number of banking accounts grew 200% over quarter. Wire transfers grew 50% over the quarter.

With Credit & Banking Strategy, Stone Co. now have all the pieces of a complete Financial Platform for small / medium business. Will launch integrated platform in Q1 2020.

Micro business platform JV to launch in Q1 2020.

HR - Job applications up nearly 200% yoy, as Stone Co. seek to grow its talent.

Many irons in the fire to maintain high growth.

Profit margins (30%!) will remain flat going forward as Stone Co. invest for growth.

Regards,

Sean

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Thanks Sean, you beat me to it, was too busy with work until now. For those that don’t know, STNE is a Brazilian payments processor, considered the SQ of Brazil, and Berkshire Hathaway is it’s most famous investor with an 8% ownership position (and this alone gives me some level of confidence that the company is legit).

But you left off one of the best parts of the ER, stock price UP over 20% today after the report. Yesterday when the report first released the stock dropped 6% and ended after hours up 2-3% so today’s action was a bit of a surprise compared to how the after hours market reacted. STNE is now my best performer of this quarters earnings releases so far. Maybe ZS or CRWD can beat the 20% mark in a couple weeks.

I forgot who initially brought STNE to the board, I thanked them earlier, but wanted to say thanks again. It was about a year ago I started a position under $20, it quickly jumped over $45 in just a couple months. It fell back to around $25 when a large Brazilian bank (Banco Itau) said it would undercut STNE rates to gain back lost share (if you look at the client growth numbers below you can see no effect yet), and the SP has slowly climbed back up over $41 now. I’ve been adding slowly throughout the year, but I don’t have as high a comfort level with this one since not many here follow or help analyze it, and I’m just not that confident in my own analysis here (it’s about a 5% position for me now after the large jump today). I’ll be the first to admit, I don’t understand all the moving parts to this company, but I’m learning. That said, I do like that they’re a disruptor with high growth numbers, and that’s what got me to make my initial investment, and they seem to continue to perform at a high level.

Top line growth of total rev and income increased 62% YOY to R$671 (Brazilian Real is worth about $0.24 US dollars).

Total payment volume (TPV in billions) increased 50% to R$32.6 B from R$21.8 B.

Active clients increased to 429,000 from 235,000 a year ago, an increase of 83% YOY, with net adds for this quarter accelerating to 68,700 from 50,500 last quarter.

Here are their net client additions for the last 4Qs from oldest to most recent:

34400
40600
50500
68700

Sequential increases of:

6200
9900
18200

Adjusted net income came in at R$202 M for the quarter (30% of rev), compared with R$89 M in the year ago period (which was 21.6% of rev), resulting in a YOY increase of 126%!

Most of their current business is with SMBs but they’re expecting to get approval for a partnership with Grupo Globo in the micromerchant space they expect to be operational in 1Q20 of which they state:

We are very excited with the new solution and brand we are launching and the opportunity to redefine micromerchant business services, as we did for SMBs in Brazil.

Their credit and banking initiatives are still in the early stages, but appear to have great growth potential.

I didn’t see much in the way of guidance from the company, unless I missed it, but I’ll close with a quote from Bloomberg:

StoneCo is the disruptor in Brazil’s expanding card-payment sector, with lower prices and better technology, local knowledge and customer service. In 2018, the company doubled customers and revenue and turned profitable.

They also state there are concerns about larger competitors, but not many disruptors don’t have those concerns, and I like going with the disruptor.

Comments? Additional analysis?

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