PagSeguro Digital (PAGS 23.53, -2.70, -10.29%) is down after
the company reported rather underwhelming results yesterday afternoon.
PagSeguro offers point of sale (POS) solutions in Brazil, allowing businesses to easily accept payments with a digital end to end ecosystem. Brazilian media giant UOL owns just over 50% of the company.
Third quarter profit beat expectations on an adjusted basis while net revenue was in-line with estimates. Investors prefer to see top-line upside for high-growth business. Net income grew 57% and net revenue grew 66% (both on a GAAP basis). Total Payment volume grew 90% to R$9.6 bln. While still impressive, payment volume growth slowed from 107% in the second quarter and 139% in the first quarter. PagSeguro added 323,00 active merchants during the quarter (up 56% year-over-year to 3.8 mln) and the company expects to add more than 300,000 merchants sequentially in the coming quarters.
A soft profit outlook also seems to be weighing on shares this morning. The company guided fiscal 2018 non-GAAP net income up 121% to R$1.05-1.06 bln and fiscal 2019 non-GAAP net income up 33% to R$1.32-1.50 bln. Analysts estimates were just above the high end of those ranges for both periods.
The stock nearly doubled by March after its January IPO but macroeconomic instability in Brazil and dislocation in emerging markets have since weighed on shares.
Competition is another potential concern. PayPal acquired the leading European small business commerce platform iZettle, which also has a presence in Latin America, for $2.2 bln in May.
Slowing growth and a common stock offering from the company and its largest shareholder UOL in June did not help sentiment.
Last month, PagSeguro introduced Moderninha Smart, a smart POS device that offers a full integration of hardware, PagSeguro's apps and its fast and secure payments network.
Greater penetration of the ecosystem combined with the trend away from cash provide a long runway for growth. PagSeguro says payment volume indicates it has less than 5% penetration of its Total Addressable Market.
With a ~$7.5 bln market capitalization, the stock trades at ~20x earnings estimates for next year.
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