StoneCo – Strong growing core business with recovering profitability, but uncertainties with execution & capital allocation
- Rupam Deb
- Jul 12, 2022
- 2 min read
In 2022 Q1, StoneCo delivered a very strong revenue growth (139% y/y), with profitability improving compared to a quarter ago (but still lower than a year ago). Overall, the business continues to have a strong and growing core operation with a growing user base that could lead to good monetisation in the future, although there are also some uncertainties with execution and capital allocation that remain to be seen.
We discuss these, together with a summary of some key financials below.
Key Financials
In 2022 Q1, total revenue grew significantly, by 139% y/y to BRL 2.1 billion, outperforming the mid-range of its guidance by 10%. This high revenue growth is partly driven by the acquisition of Linx (which was consolidated since 2021 Q3). Adjusting for this, the pro-forma revenue growth was still very high, at 87%.
The high 139% revenue growth was driven by a 108% growth in financial services platform revenues to BRL 1.7 billion (due to strong 63% TPV growth, and a slightly higher take rate (2.06% vs 1.8% a year ago for MSMB) due to the recent repricing initiatives amidst a higher interest rate environment), and a 11x growth in software platform revenues to BRL 0.3 billion (partly driven by the consolidation of Linx).
Gross profit (after deducting cost of services and net financial expenses) grew slower, at 28% y/y to BRL 688m. This translates to a gross profit margin of 33%, lower than the 62% a year ago, mainly due to a lower GPM for the prepayment (& credit business which was still in operations in 2021) due to the repricing efforts still catching up to the increased cost of fundings, and a lower GPM for the financial services platform due to increased investments.
Operating expenses grew by 103% y/y to BRL 654 billion (or 32% of revenue), with selling expenses growing the most at 136%.
Operating profit was BRL 34 million, lower than the BRL 214 million a year ago, but higher than the operating loss of BRL 45 million a quarter ago.
Core Business Strength & Profitability
Overall, StoneCo was growing very fast for its core business, and it is pleasing to see it starting to see improvement in profitability after it was hit in the past few quarters (by rising funding costs from rising interest rates, issues with credit business, etc), as it works on balancing profitability with growth more.
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