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Why Shares of StoneCo Crashed This Week

By Bram Berkowitz – Nov 18, 2021 at 5:10PM

Key Points

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The company reported earnings for the third quarter of 2021.

What happened

Shares of the Brazilian fintech company StoneCo (STNE -0.60%) plummeted more than 36% this week, as of market close Thursday, after StoneCo reported earnings results for the third quarter of 2021 that were not well received by the market.

So what

StoneCo reported a net loss equivalent to $230 million on total revenue equivalent to roughly $270 million. On an adjusted basis, StoneCo reported the equivalent of a roughly $24 million profit, which missed analyst expectations for adjusted net income.

Although revenue grew significantly on a year-over-year basis, adjusted earnings suffered because the bank had to recognize a more than $241 million loss associated with its prior investment in Banco Inter. StoneCo took a nearly 5% stake in the company in the second quarter of the year, but since then Banco Inter's stock has not fared well, along with the Brazilian economy.

Although not the quarter investors were hoping for, StoneCo, which enables businesses in Brazil to carry out payments and also grow customers, saw total payment volume in its network grow more than 70% year over year across small and medium-sized businesses (SMBs). The company also added a record number of SMBs and micro-merchants to its platform in Q3.

Person holding head while staring at red line moving downward.

Image source: Getty Images.

Now what

The Brazilian economy and banking landscape present a massive market opportunity and StoneCo should continue to be able to grow customers in a big way. But the economy is currently going through a rough stretch, with the government recently cutting gross domestic product forecasts for 2022 and inflation on the rise.

I certainly see an opportunity for this fintech to succeed in the long run, but the stock is likely to trade with a good deal of volatility due to the market it operates in.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stoneco LTD. The Motley Fool has a disclosure policy.

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