Financial technology and Latin America are both ripe for stellar growth, and StoneCo (STNE 0.38%) is strategically positioned at the crossroads. The Brazilian fintech company is backed by Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) and its noted CEO, Warren Buffett.
StoneCo generated impressive results for its fourth outing as a public company, after surprising investors with better-than-expected results in Q1. For the second quarter, StoneCo reported revenue of 586 million Brazilian reals (about $145.1 million), up 69% year over year, topping analysts' consensus estimates of $143.5 million. Adjusted net income of 194 million reals (about $48 million) increased 173% year over year, resulting in adjusted earnings per share of 0.69 reals ($0.17), in line with expectations.
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Growing like wildfire
StoneCo's impressive financial performance was backed by a strong operating metrics as well. Total payment volume (TPV) -- the total amount of payments processed for its merchants -- grew to 29.8 billion reals ($7.37 billion), up 61% year over year. The number of active clients increased to 360,200, up 80% from the prior-year quarter. The take rate -- the percentage of each dollar the company earns from the payment transactions it processes -- held steady both sequentially and compared with the prior-year quarter, at about 1.85%.
StoneCo improved its financial metrics across the board, growing each of the company's revenue segments. Transaction activity grew to 177.3 million reals (about $43.8 million), up 56% year over year, the result of increased TPV. Subscription services and equipment rental of 74.6 million reals ($18.4 million) increased 60% compared with the prior-year quarter, mainly the result of an increase in small- and medium-sized business clients.
Financial income of 297.2 million reals ($73.4 million) climbed 62% year over year, primarily because of the increase in TPV and higher prepayment volume. Other financial income of 37.1 million reals ($9.2 million) soared 501% from the prior-year quarter, the result of the interest income from the IPO proceeds and StoneCo's cash balance and short-term investments.
The company continues to generate strong operating leverage as the fintech company continues to scale. Costs as a percentage of total net revenue were 45.3%, up sequentially from 39.7% in the first quarter, the result of higher investments to expand the business. This resulted in adjusted net margin that climbed to 31%, up from 20.5% in the prior-year quarter.
StoneCo has focused on increasing the capabilities of its platform to attract new customers to its subscription model, and those efforts are paying off. The customer base accelerated substantially in the second quarter. Currently, more than 70,000 clients use at least one of the company's software solutions, more than double Q1's 32,000.
It's important to note that many of these metrics were reported when StoneCo released preliminary results on July 30, so much of the good news is already baked into the stock price.
Just so we're clear
While Berkshire Hathaway owns a sizable stake in StoneCo -- about 11% -- it was Todd Combs, one of Buffett's two portfolio managers, who made the initial purchase. Buffett gives his top lieutenants total autonomy regarding the funds under their purview.
StoneCo has recovered nicely from the shellacking it took earlier this year on reports that large Brazilian bank Itau Unibanco Holding SA would begin advancing credit card payments to small- and medium-sized businesses without charging interest rates. Those fears have largely gone by the wayside, as the move failed to slow StoneCo's momentous growth.
