StoneCo (STNE 42.74, +8.14, +23.51%) shares are surging this morning after the company
reported strong fourth quarter results yesterday afternoon.
StoneCo offers integrated technology solutions for small and medium sized businesses in Brazil. The core Stone business offers a point-of-sale solution, which competes directly with PagSeguro Digital (PAGS). The company also offers Pagar.me, a payment service provider; Mundipagg, a full-featured e-commerce gateway that connects e-commerce sites and acquirers; and Equals, a reconciliation dashboard. As a result, StoneCo appears to be a Square (SQ) and Shopify (SHOP) for small and mid-sized businesses in Brazil.
Fourth quarter results were impressive. Revenue surged 114% to R$529 mln. Adjusted net income grew 646% to $156 mln. The business is scaling quite well as the adjusted net margin expanded 2,100 basis points to 29.5%.
Stone preannounced strong fourth quarter metrics in late January. Active clients more than doubled to 268K, while total payment volume grew 74% to R$26.6 bln and the take rate expanded 30 basis points to 1.88%.
StoneCo remains focused on adding capabilities to their platform that help clients manage their business better and sell more. Software solutions are showing traction and increasing penetration in clients through their subscription model. Currently, ~14,000 clients use at least one type of software, and a much larger number of clients use the client portal dashboard and mobile app account. Last month, the company invested in Collact, a provider of customer relationship management (CRM) software for customer engagement, focused mainly in the food service segment. The model appears to be working.
Adding to enthusiasm around the stock is the fact that Warren Buffet's Berkshire Hathaway (BRK.B) owns 5% of the company. What's more, the macroeconomic picture in Brazil has stabilized under the country's conservative president, Jair Bolsonaro, who is in Washington, D.C. today.
StoneCo now has a market cap of ~$12 bln. The stock trades at ~24x EBITDA estimates, a notable premium to PagSeguro.
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