I’ve now gone through the ER call -
TOTAL TAM for merchant acquiring/payments is BRL 40 billion
TAM for banking/credit/software services is around BRL 140 billion
Management expects to secure 25-30% market share (current share = 6%)
The volume of payments in Brazil is increasing by 20-25% per year
If one assumes that StoneCo manages to secure 15% market share at maturity, at today’s FX rate, we’re looking at ARR of (15% of BRL 140 billion) around US$5 billion.
Assuming 30% margin, at Brazilian market maturity, we get to a net profit of around $1.5 billion.
Payment processing companies typically trade around 20-22 times earnings but if we assign a 25 multiple on $1.5 billion profit (slightly higher multiple due to SaaS recurring revenue/banking and credit services), we get a market cap of US$37.5 billion (versus US$11 billion now).
Company management has said that it will expand into other S. American nations but to remain conservative, lets just ignore the international opportunity altogether.
So, using conservative estimates, we are looking at a triple from here or the stock climbing to $120-125 within a few years.
All of this looks good but my one big reservation is currency risk - after all, S. America is well known for currency crises and macro/political turmoil. Given this very real risk, I’m not going to add to my 8.5% position.
I hope the above has been useful.