One of the more closely watched young players in the emerging fintech space is StoneCo (STNE 0.26%), the Brazilian company backed by Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.30%) and its acclaimed CEO Warren Buffett. Since StoneCo went public in late 2018, its stock has gained 39%, more than tripling the 12% gains of the S&P 500 during the same timeframe.
StoneCo released its fiscal 2019 fourth-quarter financial results after the market close on Monday, and its consistently impressive results continued. The company reported revenue of 783 million Brazilian reals (about $175 million), up 48% year over year. This easily surpassed the $172.6 million expected by analysts. Adjusted net income of 275 million reals (about $61.5 million) climbed 76% year over year. This resulted in earnings per diluted share of 0.94 reals ($0.21), also exceeding expectations of 0.89 reals ($0.20).
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Improving metrics
The company continued its unbroken streak of significant improvements in each of the key operating metrics it provides. Total payment volume (TPV) -- the total value of payments processed for customers -- grew to 40.2 billion reals (about $9 billion), up 51% year over year. StoneCo's active client base grew by more than 66,000 during the quarter, climbing to 495,100, up 84% year over year. The take rate -- the percentage of every dollar the company keeps from each payment transaction it processes -- clocked in at 1.80% in the fourth quarter, slipping from 1.88% in the prior-year quarter, but declining just 8 basis points.
Each of StoneCo's revenue segments also saw robust improvement. Transaction activity grew to 230.4 million reals (about $51 million), up 32% year over year, the result pf higher TPV. Subscription services and equipment rental of 91.6 million reals ($20.4 million) increased 31.8%, mainly attributable to the increase in small- and medium-sized business (SMB) active clients, and partially offset by subscription incentives to attract new clients. Financial income of 404.1 million reals ($90.3 million) climbed 58% year over year, mainly the result of the increase in TPV. Other financial income of 56.9 million reals ($12.7 million) soared 109%, the result of the interest income from the IPO proceeds on StoneCo's cash balance and its short-term investments.
For the quarter, costs as a percentage of revenue were 39.6%, down about 3% compared to the prior-year quarter, as the company invested heavily to expand its operations. This resulted in net margins that improved to 31%, up from 19% in the year-ago quarter, and the highest margin in StoneCo's history.
Buffett can't actually take the credit
Buffett's Berkshire Hathaway invested $340 million to acquire 14,166,748 Class A shares of StoneCo, piggybacking on its IPO, at roughly $24 per share. The move raised eyebrows at the time, a departure from the type of company Buffett would typically choose. Reports later confirmed that it was one of Buffett's portfolio managers -- Todd Combs -- who had made the investment decision.
Brazil is a largely cash-based society and nearly 1 in 3 Brazilians don't have a bank account, allowing StoneCo to offer its services to the unbanked, a population that amounts to about 45 million people. That gives StoneCo a market ripe for disruption and the company is delivering impressive growth on all the metrics that count.
