Like everywhere else, the COVID-19 pandemic has had a deep impact on the Brazilian economy. But Brazil-based digital payments and financial technologist firm StoneCo (STNE -1.88%) has rebounded quickly from the virus-related slowdown, and it is helping its customers adapt to the new digital era that has taken hold in the region as a result.
Still a relatively small company with lots of market space ahead of it to grow into, I remain a buyer of this fintech stock.
New business records set in summer 2020
The total volume of payments processed on StoneCo's platform during the third quarter increased 114% from a year ago to 69.7 billion Brazilian reais ($12.4 billion using exchange rates from Sept. 30, 2020). Excluding the "coronavoucher" -- a stimulus program from the Brazilian government aimed at workers that have lost jobs during the pandemic -- payment volume increased 48% year over year to 48.1 billion reais ($8.56 billion). All told, StoneCo's revenue and adjusted income increased 39% and 43%, respectively, to 934 million reais ($166 million) and 288 million reais ($51.2 million).
Paired with the first half of 2020, StoneCo is doing very well considering the economic situation in Brazil.
|
Metric |
Nine Months Ended |
Nine Months Ended |
Change |
|---|---|---|---|
|
Total payment volume |
$25.9 billion |
$15.8 billion |
64% |
|
Active clients |
583,000 |
414,000 |
41% |
|
Revenue |
$413 million |
$319 million |
29% |
|
Adjusted net income |
$107 million |
$104 million |
3% |
Brazilian reais converted to U.S. dollars using exchange rate as of Sept. 30, 2020. Data source: StoneCo.
Also worth noting was StoneCo's proposed acquisition of fellow Brazilian fintech company Linx (LINX) back in August. Linx shareholders are due to vote on the merger on Nov. 17. But even without the merger, investors should be pleased that StoneCo continues to rebound back to pre-COVID-19 growth rates. Management said it sees the trend continuing during the final months of 2020.
Image source: Getty Images.
Building a new Brazilian economy
E-commerce still accounts for just a mid-single-digit percentage of purchases in Brazil, and StoneCo is one of a few companies leading the charge to get the economy updated for the times. Besides its digital payments platform for small- and medium-sized merchants (sometimes compared to Square (SQ -0.31%) here in the States), StoneCo is trying to create something new for its customers: a tech-enabled one-stop-shop financial services firm.
On the last quarterly earnings call, CEO Thiago Piau explained the "three highly synergistic platforms under the StoneCo umbrella." The first is a financial platform for smaller businesses that includes the payment processing bread-and-butter, as well as other financial services to replace the traditional bank (or in many cases offer banking services for the first time, as tens of millions of Brazilians still don't have a relationship with a bank at all). The second is a fintech-as-a-service platform, including software and other integrated digital functions for online marketplaces, digital wallets, payment processors, and the like.
But the third, which would be trailblazed by the pending Linx acquisition, would be a full-blown e-commerce software suite for merchants of all sizes. Linx's software complements Stone's already extensive capabilities with an advertising engine, e-commerce tools, customer relationship management and enterprise resource planning software, and more. Besides benefiting from the continued digitization of business in Brazil, the two companies together would have lots of potential to cross-sell services to customers and accelerate the vision to make e-commerce more mainstream in South America's largest economy.
After the Q3 2020 report, StoneCo shares trade for 35 times trailing 12-month sales and 122 times adjusted earnings (although profit is of less concern right now as this company remains in high-growth mode). This is a premium-priced stock but worth the price in my opinion. StoneCo is expanding at a rapid pace in spite of headwinds from the pandemic, and it has plenty of room to continue growing in an economy that has a long way to go on the digital front.
