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StoneCo (STNE): 2020 Q4 Earnings – 15 Points

StoneCo 2020 Q4 earnings report

On 11 March 2021, StoneCo, which we will refer to as Stone, announced its 2020 Q4 earnings results.

Despite the challenging year posed by the COVID-19 pandemic, Stone has continued to grow impressively in all key metrics, including total payment volume, number of active client base, total revenues, adjusted net income, and adjusted free cash flow. For example, Stone had a record quarterly addition of new clients in 2020 Q4, reaching over 652 thousand active payment clients in 2020, an increase of 35.7% year-on-year. Total revenue increased by 29% year-on-year to BRL 3.3 billion. However, net profit margin dropped from 31.2% in 2019 to 25.2% in 2020. What happened?

Here are our 15 key points of the earnings results and earnings call, including the CEO’s views on the company’s strategic directions and moats!

  1. Total payment volume (in short, TPV) in 2020 Q4, including Coronavoucher, was BRL 64 billion, a 60% increase from BRL 40 billion in 2019 Q4. TPV for 2020 full year was BRL 210 billion, a 63% increase from BRL 129 billion for 2019, which is a record addition of TPV in one year of BRL 81 billion. This increase is equivalent to the total TPV Stone processed in 2018, at BRL 83 billion. Excluding Coronavoucher, TPV in 2020 grew at a lower rate of 43% from 2019, again resulting in a record year over year TPV addition. The diversification of Stone’s business, both in terms of geographic coverage, profile of clients and channels, has helped it to deliver such an increase even during a year with strong pandemic impacts.On the TPV mix (excluding Coronavoucher volumes) in 2020 Q4, the clients of Pagar.me (which is the payment service provider offering various services including Mundipagg’s gateway services and prepayment solutions) represented 40% of the total TPV, with hubs and TON representing the other 60%. The TPV showed strong growth for both TPV in the hubs as well as in Pagar.me .In its hubs, TPV grew 45% year over year in 2020 Q4 with improving unit economics and higher TPV per client than in 2019. Pagar.me’s TPV grew faster at 80% year over year in 2020 Q4, but slower at 40% excluding Coronavoucher.

  2. Active client base in payments (excluding TON, their solution for micro merchants) was 653 thousand in 2020, a 36% increase from 2019. This was a record net addition of clients in a quarter.TON, since its launch in March 2020, grew significantly as Stone learned more about their clients and succeeded in improving the unit economics of the solution. The number of TON active clients reached 114 thousand in 2020, with a 75% client base growth from 2020 Q3 to 2020 Q4. Given the encouraging unit economics trend and the traction of TON, Stone expected to continue to invest in 2021 to improve the solution and bring it to more clients. They had also decided to change the scope of their media agreement with Grupo Globo to the whole Stone group in January 2021, where they executed the flip of Globo´s 33% ownership in TON to the Stone level (by issuing 1.3 million Class A shares (equivalent to BRL 461 million) to Globo), and in return Stone now owns 100% of TON. With Globo now owning shares in Stone, Globo would have more incentives to help Stone succeed. Stone did this deal, because they believed that being able to have access to Globo’s media and expertise to also strengthen their other brands other than TON would be the ideal move, giving them more flexibility in terms of media allocation and seeking better overall returns. On credit solutions, the number of clients with credit solutions grew to 89 thousand,or 3.7 times over 2019. The open digital banking accounts reached 508 thousand or 8 times over 2019. The number of software clients was 388 thousand, or 2.9 times over 2019.

  3. Stone’s ABC (that is acquiring, banking, and credit) plus software strategy has progressed well in 2020. At the end of 2020, 34% of their small and medium sized businesses (in short, SMB) acquiring clients used at least one of their other financial products compared to only 10% in 2019, leading to higher revenue per client and lower churn.At the end of 2020, 5.3% of these were heavy users compared to only 0.5% in 2020 Q1. The heavy users refer to users using multiple financial solutions, and they generated 2.6 times higher revenue compared to the clients using only a payment solution.At the end of 2020, the ecosystem of software solutions (including the POS and ERP solutions) had approximately 388 thousand clients, an increase from the 342 thousand in 2020 Q3, or the 135 thousand at end 2019, representing a significant 13% quarter-on-quarter or 187% year-on-year increase respectively.

  4. Total revenue was BRL 1,001 million in 2020 Q4, a 28% increase from BRL 783 million in 2019 Q4. For 2020, total revenue was BRL 3,320 million, a 29% increase from BRL 2,576 million in 2019. The management believed that there is still a lot of room to penetrate the BRL 120 billion addressable market of payments, software, banking and credit for SMBs. Excluding other financial income, which comprises primarily interest on cash, revenue grew rapidly at 32% in 2020 Q4 from 2019 Q4, despite the COVID-19 impact. The revenue growth was driven primarily by the growth in TPV as discussed earlier, offset by lower take rate year over year.

  5. Net Revenue from transaction activities and other services was BRL 335 million in 2020 Q4, a 46% increase from 2019 Q4, mostly due to the growth in TPV, offset by the reduction in take rate year-on-year.

  6. Take rate, including Coronavoucher, was 1.49% in 2020 Q4, a 0.19% increase from 2020 Q3. This increase was due to lower Coronavoucher volumes in 2020 Q4, which were debit-like transactions with lower take rate. However, excluding Coronovoucher, their take rate was 1.64% in 2020 Q4, or a 0.12% quarter-on-quarter decrease from 2020 Q3, mostly as a result of seasonal effects, namely (1) a higher proportion of debit over credit, and (2) the effect from revenues which are unrelated to TPV, including POS subscription and revenues from their credit solution, which had a negative impact on take rates in fourth quarters due to strong volume seasonality. Compared to the previous year, take rate, excluding Coronavoucher was 0.16% lower than 2019 Q4, due to lower Pagar.me take rate, as a result of lower prepayment prices in key accounts, which were directly impacted by the lower base interest rate in the country. Although this lower base interest rate and prepayment price led to Pagar.me’s revenue decreasing 1% year-on-year, its revenue net of cost of funding actually grew 46% year-on-year, as the cost of funding also decreased due to lower interest rate.

For full year 2020, take rate was 1.73% excluding Coronavoucher, or 1.51% including Coronavoucher which was a 0.34% decrease from 2019.

For the remaining points, check out our Multibagger Research Series at https://moneywisesmart.com/MultibaggerResearch/


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