StoneCo: 2021 Q1 Earnings – 17 Points Not to Miss!
- Rupam Deb
- Jun 22, 2021
- 5 min read
StoneCo – 2021 Q1 Earnings
On 1 June 2021, StoneCo (in short, Stone), announced its 2021 Q1 earnings results.
Despite the second wave of COVID-19 leading to a Brazilian economic restriction, Stone continued to grow impressively. Active clients in their core payments business (which include the Stone, Pagar.me, and TON brands) grew 67% year over year, achieving 858 thousand active clients at the end of 2021 Q1. Their total payment volume (in short, TPV), grew 45% compared to the same quarter last year. Additionally, Stone continued to invest aggressively as they wanted to be the fastest player when their economy comes back to normal once vaccination scales..
Here are our 17 key points from the earnings results and earnings call, including on how Stone’s vision has evolved for their financial technology business!
In 2021 Q1, the second wave of the COVID-19 pandemic in Brazil resulted in different commerce restrictions among the many Brazilian cities, imposing a more challenging scenario for Stone’s clients and commerce as a whole. Despite this situation, Stone’s consolidated TPV in 2021 Q1 was BRL 51 billion, a 36% year over year growth from 2020 Q1. Excluding Coronavoucher volumes, TPV grew 35% year over year. TPV for their core small and medium businesses (in short, SMB) operations (which include the Stone, Pagar.me and TON SMB operations) grew to BRL 33 billion or a 45% year over year growth, similar to the growth level in 2020 Q4 of 47%.The growth accelerated strongly in 2021 Q2 , with TPV growing 122% in April and 111% in May up to 20 May, 2021. Adjusted for the effect of a weaker baseline TPV in April and May 2020 due to the COVID-19 pandemic, a two-year CAGR of TPV was 42% and 50% in April and May to date, respectively.
In 2021 Q1, overall active client base from their SMB operations increased by 67% year over year, or by 138 thousand clients to a total of 858 thousand clients.This increase is driven by a year over year increase of 62 thousand clients (or a 36% increase) from the Stone and Pagar.me SMBs (which is slightly lower than the 65 thousand increase in the previous quarter amidst the COVID-19 commerce restrictions), and an increase of 77 thousand (or a 820% increase) from TON (which is a strong acceleration compared to the 48 thousand increase in the previous quarter).From 2021 Q1 onwards, Stone started including a small number of active clients from Pagar.me payment service provider solutions in their active client base numbers.
At the end of 2021 Q1, the active client base was 670 thousand for SMBs, and 190 thousand for TON. The number of clients active in their credit solution reached 102 thousand or a 15% quarter over quarter growth, or a 3.3 times year over year growth.
Stone continued to see higher traction of clients in their ABC Platform, with the percentage of heavy users, which were those who were active in payments, credit and banking at the same time, reaching 7.7%, an increase from the 5.3% in the previous quarter, or 0.4% in 2020 Q1. The percentage of their payments SMB clients in the hubs, that were also active either in credit or banking, increased to 41% in 2021 Q1, compared to 34% in the previous quarter. These are pleasing to see, because as the clients increasingly use more of Stone’s banking, credit or software solutions, they become more sticky and have higher lifetime value, which helps with Stone’s long term revenue growth.
Total revenue in 2021 Q1 was BRL 868 million, a 21% increase from BRL 717 million in 2020 Q1. This result was despite a BRL 116 million adverse impact from higher credit provisions of BRL 110 million, and Covid-related financial incentives of BRL 6 million.
Total revenue growth was driven primarily by the 36% increase in TPV, partially offset by the lower take rate year over year. The consolidated take rate, excluding Coronavoucher, was 1.63%, lower than the 1.81% in 2020 Q1, mainly due to the impact of high credit provisions. The credit provisions were mainly for the older cohorts in 2020 Q1, where back then they did not estimate a second wave of COVID. Therefore, their model for those cohorts was not ready to deal with lockdowns and what happens with certain types of clients when they are closed to a big period of time. Some of those clients were no longer in business. Therefore, Stone had to make provision for such changes.
However, Thiago Piau (the CEO) and the other management said that, after those cohorts, they had adapted their models based on what they learned, and they were confident with their existing provisions for all the cohorts. Thiago also said that, “[this does] not reduce our appetite for this product, as Rafael have said. It’s actually the opposite, because when you go through such difficult environments and you can operate with a healthy level of returns. You can see that the worst cohort is 0.5% a month [risk adjusted return net of cost of funding], it increases your ability to provide more working capital to your clients…”
Net revenue from transaction activities and other services was BRL 318 million in 2021 Q1, a 40% increase from 2020 Q1, driven by the growth in TPV year over year with a higher transaction activities and other services take rate. Take rate of SMB operation was 1.87%, decreased from 2.20% in 2020 Q1 due to the additional provisions on the credit product caused by commerce restrictions. Excluding these effects, Stone’s take rate would have been higher at 2.22%, which is higher than the 2.20% in 2020 Q1.
Net revenue from subscription services and equipment rental was BRL 140 million or a 50% increase from 2020 Q1, primarily driven by a higher active client base, combined with contribution from their software solutions. This was partially offset by lower average subscription per client for the point of sale (in short, POS) device sales, as a result of additional new client subscription incentives.
Financial income was BRL 369 million in 2021 Q1, a 2.6% increase year-over-year primarily due to higher prepayment volumes. Financial income was negatively affected by higher provisions for delinquencies in their credit solution amid COVID in the quarter. Their credit portfolio continued to grow, and reached a risk adjusted return net of funding costs of between 1.5% and 1.9% on a monthly basis, notwithstanding the short-term impact from COVID.The number of clients with credit increased to 102 thousand from 89 thousand in 2020 Q4, with credit portfolio increasing to BRL 1.9 billion from BRL 1.5 billion in 2020 Q4.To limit their exposure to credit risk, Stone concluded another issuance of FIDC, raising additional BRL 340 million in third party capital. In total, they now had available BRL 833 million in third-party funding to be disbursed in their credit operation, with BRL 317 million already used. The BRL 317 million third-party funding already used for credit business constituted 17% of the total BRL 1.9 billion credit portfolio. That 17% third-party funding portion was a large increase from the 4% in 2020 Q4, as Stone increasingly tapped on external capital, now that they had tested their credit models and wanted to scale up.
Stone is very optimistic about their credit and prepayment businesses, and Rafael Martins (the vice president of finance) commented that “the market is really, really big. So our credit solution is really in the early beginnings”.
For the remaining points, check out our Multibagger Research Series at https://moneywisesmart.com/MultibaggerResearch/
Do check out our summary analysis of StoneCo in the video below too!
P.S. If you have enjoyed this article, do share it with your friends so that more people get to learn about this amazing company and provide their comments on it!
Do join our investment forum on Facebook too where we discuss interesting investment concepts and ideas.
Comments