What happened

Shares of Brazilian fintech company PagSeguro Digital (NYSE:PAGS) are rising today, in hopes the company will soon report an improving business situation like its peer StoneCo (NASDAQ:STNE). The stock spiked 17% higher early, but as of 12:45 p.m. EDT it was 8% up for the day.

StoneCo stock is also rising today, after reporting its business is already recovering from the impact of COVID-19. This gives PagSeguro shareholders hope. Even still, both stocks are down for 2020.

PAGS Chart

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So what

StoneCo reported its total payment volume (TPV) had fallen 4% year over year in the second half of March as Brazilian businesses closed due to the COVID-19 pandemic. Both StoneCo and PagSeguro generate revenue when the money is flowing. Disrupting the flow by shutting businesses isn't good for either company. Furthermore, coronavirus cases are still climbing in Brazil, making it unclear when normal business will return for PagSeguro.

That's why PagSeguro stock fell over 50% in March. But now it's rising after StoneCo showed improvement in TPV in April and May. In fact, StoneCo's TPV is now 87% of what it was before the coronavirus. PagSeguro is set to report first-quarter earnings tomorrow. Today's rally is an attempt to get in ahead of potentially positive results, like the surprise StoneCo served up.

If PagSeguro's business has mostly recovered, that would certainly be good news for shareholders. What's more, the company recently created PagPerto -- a service designed to help small business owners make the leap to e-commerce. If the company can drive e-commerce adoption, and the economic situation improves in Brazil, this fintech company could be well positioned to benefit for years to come.

Now what

StoneCo also estimated that 50% of all Brazilian e-commerce payments passed through its platforms from mid-March through the end of April. That estimate, if true, would indicate StoneCo is gaining market shares in Brazil. PagSeguro and StoneCo are different businesses, but do have a lot of overlap. If I were a PagSeguro shareholder, I would be concerned with StoneCo's potential market shares gains.

That said, Brazil is likely still early in its e-commerce and digital payments transformation. There should be plenty of growth to go around. When PagSeguro reports earnings, I'd focus on a timeline for business to return to normal, and look for ways the company is pushing further adoption.