StoneCo Ltd

  • Exchange: NASDAQ
  • Ticker: STNE

StoneCo is a payments company in Brazil. They offer a point of sale device for small businesses and a software platform to support a businesses financial operations.


November 22, 2020

Thesis - Stone is a high-growth payments provider in Brazil, focusing on small and medium sized businesses. They started their business by providing a point of sales device to small businesses, but have expanded into a broader payments and finance provider including APIs to take online payments, digital accounts for businesses to pay bills and credit offerings. They are often compared to Square in the US. The company made waves when they went public in 2018 after both Warren Buffett (Berkshire Hathaway) and Jack Ma (Alibaba) bought shares. In order to grow, Stone have 350 “hubs” - local distribution centres in Brazilian towns where they have a team of sales reps and support operators who are able to sell their solutions and helps merchants. This is part of their strategy to be a customer-first business, providing the best experience for a financial company in Brazil. Since it’s IPO just a year and a half ago, StoneCo has tripled in valuation.

Leadership - StoneCo is founded by André Street and Eduardo Pontes. The two have been jointly working in the payments business in Brazil for many years. André started his first payments business at 15 years old, transferring money between buyers and sellers on Auction sites. He’s since gone on to start 3 more payments businesses, before forming StoneCo. In between, he graduated from Stanford business School. Eduardo Pontes joined André later as part of Arpex Capital, where they both invested in payments in Brazil. It was during their work at Apex that they saw the opportunity to build a truly customer-first payments business in Brazil.

Financials & Performance - As of Q3 2020, Stone has 582,900 merchants clients, 357,100 digital banking accounts and 73,000 businesses using their credit lines. After a reduction in business during the initial coronavirus disruption, the business seems to be recovering well. They gained 63,500 new clients in the quarter, even though hubs are at 60% capacity. Stone make their money through a combination of business lines: interest on credit lines, transaction fees on payment volume and then subscription and rental fees. Total payment volume grew to R69.7bn (Brazilian real), up 113.8% year on year (47.6% excluding coronavouchers, the Brazilian gov assisted payment support program). The company is profitable, recording net income of R$287.9m, up 42.6% year on year and have gross margins of 50-60%.

Risks - Brazil is a burgeoning market that comes with some risks. The currency often fluctuates relative to the US dollar. It also has weaker institutions and the founder André Street has commented that it can be a difficult environment for entrepreneurs, although he insists it is becoming better. Finally, payments is becoming a competitive space. MercadoLibre (mentioned in edition 9) is growing across the LatAm region, as well as legacy credit providers and also newer companies, like Pagseguro…

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