But, this morning, StoneCo (STNE 30.71, +6.71, +27.96%) impressively withstood the turbulent environment as it increased the IPO size to 50.7 mln ADS from 47.7 mln, while its IPO also priced at $24 versus the $21-$23 expected range. The company’s growth has been very strong, nearing triple digit rates. The company also has a formidable position in the Brazilian small and medium business market, serving over 200,000 active clients.
On top of that, the deal was led by tier one firms Goldman Sachs, JP Morgan, and Citigroup. So, STNE does have a few key positives working in its favor that helped it overcome the challenging IPO market.
The healthy level of demand in the primary market seems to be translating into sizable gains on the open market after opening for trade this morning.
STNE is a Brazil-based provider of an end-to-end cloud-based technology platform that provides seamless omni-channel capabilities for in-store commerce, e-commerce and mobile commerce. STNE helps merchants process cards and conduct e-commerce in Brazil. The goal is to allow vendors to overcome long-standing inefficiencies within the Brazilian payments market. StoneCo sees its model as disruptive and it has enabled StoneCo to gain significant traction in only four years since the launch of its service.
StoneCo captures payment credentials through its software and devices, encrypts and tokenizes data via its gateway, authorizes and processes transactions, and completes the clearing and settlement payment process on a single platform, without the need for third-party vendors. This enables StoneCo to capture value across the payment chain, maintain control of the transaction data, increase efficiency, and operate with a lower cost base. This end-to-end functionality is more convenient than doing business with multiple vendors.
StoneCo currently serves over 200,000 active clients of all sizes, though its focus is primarily on targeting the 8.8 mln small-and-medium-sized businesses (SMBs) in Brazil. It also sells through partners, which embed StoneCo's platform into their own offerings. In addition to generating revenue from payment processing, STNE also generates revenue from fixed monthly subscription fees paid by its active client base. These fees are charged for services, such as POS rental, reconciliation systems and business automation systems.
Despite Brazil's large size, its online payments market remains less penetrated and has greater growth upside than more mature economies. Electronic payments represented only 28.4% of total household consumption in Brazil in 2016. This is much lower than 46.0% and 68.6%, respectively in the US and the UK. Brazil is a large and fast-growing market for financial technology. Retail e-commerce sales in Brazil are expected to grow from R$61.8 bln in 2017 to R$104.8 bln by 2022. Brazil is the fourth largest market in the world for non-cash transaction volumes.
Turning to the financials, the company was not profitable in 2017 but was profitable in 1H18. Revenue and income in 2016 was R$439.9 mln, that grew 74% in 2017 to R$766.6 mln. That's in Brazil's currency, 2017 sales in US dollars was US$198.8 mln. In 1H18, revenue grew 92% yr/yr to R$635.7 mln, or US$164.9 mln in US dollars.