StoneCo: 2021 Q3 Earnings – Key Points to Know!
- Rupam Deb
- Dec 13, 2021
- 3 min read
StoneCo – 2021 Q3 Earnings Results
On 16 November 2021, StoneCo (in short, Stone) announced its 2021 Q3 earnings results. Total payment volume grew 53.6% y/y, and active client base increased twofold when compared to last year, reaching 1.4 million clients, driven by Stone’s innovative software and digital banking solutions.
Higher payment volume and the increase in active client base also translated into strong top-line growth with revenue increasing 57.3% y/y. However, adjusted net income declined substantially to BRL 132.7 million, down 53.9% y/y primarily due to increased financial expenses, fair value adjustment of Bank Inter investment and lower margins. Investors are less than impressed with the results as Stone’s share price plummeted after the earnings. So, what exactly happened, and how should we interpret the earnings?
Here are our key points from the earnings results and earnings call!
Consolidated Total Payment Volume (TPV) reached BRL 75 billion, representing a 54% y/y and and 26% q/q growth when excluding Corona voucher volumes. Looking at the main players in the market with publicly available data, StoneCo reached nearly 13% of market share in TPV.Considering only Micro+Small to Medium Businesses (MSMB) volumes, market share of the total market volume is approximately 9%. More importantly, the MSMB business has shown consistent growth and reported its highest ever quarterly market share gain of over 1.3%:
Active client base increased twofold when compared to last year reaching 1.4 million clients, driven by high net-addition of clients in the quarter of 294,000 (a more than threefold increase y/y).
The number of active digital banking accounts grew at an even faster pace, surpassing 420,000 in the quarter, which had more than quadrupled since a year ago.
The MSMB TPV grew at a 2-year CAGR of 61% in the quarter, accelerating from 48% in the second quarter and 42% in the first quarter. While the more mature SMB operation was able to grow TPV over 70%, the micro merchants volume surged to BRL 3.4 billion in the quarter, nearly 23 times higher than the previous year:
Consolidated net-adds in MSMB also accelerated to approximately 290,000 in the quarter. As a result, Stone reached over 1.3 million active clients:
Stone’s main engagement metrics also improved on a quarterly and yearly basis, such as total accounts balance, which reached over BRL 1 billion at the end of the quarter, a threefold increase y/y.Net cash inflow from the legacy credit product in the third quarter was BRL 483 million, thereby reducing the credit portfolio to approximately BRL 1.6 billion from BRL 2 billion in the previous quarter. The coverage ratio remained above 100% and the legacy credit portfolio is performing as expected, so no further provision was made.
As Stone indicated in the beginning of the year, significant investments will continue to be made in engineering, sales, marketing, and operational teams to expand capability. We saw that in the third quarter as Stone incurred BRL 120 million more Operating Expenses (OpEx) y/y. These higher costs, coupled with higher interest rates, impacted margins.Stone has started to reprice clients, but it is a difficult balancing act as they want to maintain healthy growth rates, but also ensure that their merchants are satisfied.
Stone’s cost of services also increased as it invested in its technology registry platform, TAG. There were also additional data center costs to support the growth of operations, customer service, and logistics teams.In selling expenses, Stone reported investments in the expansion of hub operations and higher marketing expenses.
The third point to highlight is that the administrative expenses increased significantly, over 100% y/y. This is primarily due to BRL 63 million of one-off fees paid to advisors related to the Linx acquisition. Stone also reported a higher amortization expense for fair value adjustments on intangible assets related to acquisitions, which would slow down in the future if Stone doesn’t make similar large acquisitions in the future.
For the remaining points of this earnings summary, check them out at our Multibagger Research Series (linked below).
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For our summary analysis of the company, check out the video below.
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