PagSeguro is a Brazilian payments company enabling mobile and web payments for e-commerce and freelancers.
PagSeguroNovember 22, 2020
Thesis - PagSeguro is another payment upstart, having IPO’d before StoneCo as one of the hottest IPOs in Brazil. The business is primarily owned by Universo Online, one of the most popular websites in Brazil and was formed as their financial platform. It started by providing a payment solution via email, for websites that didn’t have e-commerce capabilities. It’s since expanded into multiple business lines, providing low-cost point of sales solutions as well as Banking solutions (PagBank). As you can see, PagSeguro and StoneCo operate across similar business lines and geographies. They differ somewhat in distribution, with PagSeguro focusing on micro-businesses (freelancers and individuals) which they reach directly, whilst StoneCo focuses on SMBs via their hub strategy. Still, there is definitely some crossover. PagSeguro has also posted some impressive growth numbers, which underlines the movement to cashless payment in the region.
Financials & Performance - In their last quarter, PagSeguro announce an all-time high total processing volume of R44.9B, up 53% year on year (44% ex-Coronavouchers). Active merchants grew to 6.3m. The lower TPV but larger merchant base reflects they strategy of focusing on smaller businesses, individuals and freelancers. Total Revenues was R$ 1.8B, growing 22% year on year. A significant difference here is the margin profile, with gross margins at the moment of 15-20%.
Risks - The risks are mostly equivalent to the above. The region is uncertain and the competitive environment is harsh. Whereas StoneCo has really surged since its IPO, PagSeguro has been more volatile and generally moved sideways. Payments is a large industry and as Visa, MasterCard, Paypal and Square have shown in the US, there is room for many competing players. PagSeguro will want to increase its margin to gain a better valuation relative to its peers.