StoneCo Is Still Cheap, Still Growing, and I'm Still Buying! (Q4 & FY 2023 Earnings Review)
Summary
TLDRStoneCo, a Brazilian financial technology company, reported earnings with a stock drop following the announcement. Despite a 10% after-hours decline and a 6.8% drop, the stock has risen 82% in the past year. The company's founder, André, is stepping down as chairman but remains involved. StoneCo's competitive advantage lies in its vast reach, serving over three million small businesses across 5,000 cities in Brazil. The firm is also focusing on customer satisfaction and transitioning to a platform model to serve various needs beyond payments. Strategic shifts include offloading less profitable customers and concentrating on key verticals, aiming for sustainable growth and profitability.
Takeaways
- 📉 StoneCo's stock price fell significantly after reporting earnings, but the speaker isn't concerned about the short-term dip.
- 🚀 Over the past year, StoneCo's stock has seen an impressive 82% increase despite recent declines.
- 🤵 The founder of StoneCo, André, is stepping down from his board and chairman roles, which has caused some market apprehension.
- 🌐 StoneCo has a vast reach, operating in over 5,000 cities and serving more than three million small businesses in Brazil.
- 🏆 The company prides itself on superior service, boasting a quick response time of less than five seconds for customer support.
- 💡 There's speculation about the future role of generative AI in StoneCo's operations, potentially handling customer service and saving costs.
- 🛍️ StoneCo is transitioning towards a platform model, aiming to serve a variety of business needs beyond payments.
- 🎯 The company is sharpening its strategic focus, implementing zero-based budgeting and cost management methods, and offloading less profitable customers.
- 📈 StoneCo's payment client base is growing rapidly, with a 37% year-over-year increase and 3.5 million customers using their devices.
- 💰 The company is focusing on profitable growth, with adjusted net income and EBIT growing faster than total revenue.
- 🔄 StoneCo's banking service is showing strong growth, with a 50% increase in client deposits and a 3x increase in active clients.
Q & A
What was the recent stock performance of StoneCo after reporting earnings?
-StoneCo's stock was down about 10% after hours following the earnings report and approximately 6.8% by the end of the day.
What significant change is happening within StoneCo's leadership?
-The founder of StoneCo, André, is stepping away from his role as chairman of the board. He will, however, remain involved in the company and will elect the next chairman.
How has StoneCo's stock performed over the past year?
-Over the past year, StoneCo's stock has seen an increase of 82%.
What is StoneCo's competitive advantage in the marketplace?
-StoneCo's competitive advantage includes a vast reach with over three million small businesses using their services, presence in 5,000 cities covering 99% of the service GDP in Brazil, superior service with quick response times, and a focus on key verticals like retailers, gas stations, food stores, and drug stores.
What is StoneCo's strategy for moving towards a platform model?
-StoneCo aims to transition from being solely a payments company to a platform that can serve various needs, from ERP software for a gas station to banking and credit services, thus expanding their offerings beyond payments.
How is StoneCo focusing on efficiency and strategic priorities?
-StoneCo is implementing zero-based budgeting and cost management methods, reshaping its organizational structure, and offloading less profitable customers to focus on key verticals and profitable growth.
What is StoneCo's approach to customer engagement and take rate?
-StoneCo aims to increase customer engagement by encouraging users to make money their way and by slightly increasing the take rate, with a guided increase towards 2.5%.
How has StoneCo's banking service performed recently?
-StoneCo's banking service has seen significant growth, with client deposits increasing by 50% and active clients tripling between 4Q 2022 and 4Q 2023.
What is StoneCo's current cash position?
-StoneCo has a cash position of 5.1 billion RIS, which is equivalent to about 1 billion US dollars of net cash on the balance sheet.
What is the speaker's view on StoneCo's revenue growth and valuation?
-The speaker conservatively estimates StoneCo's revenue growth to be 21% over the next 12 months and considers the company to be very cheap, trading at roughly two times sales.
What is the speaker's investment strategy regarding StoneCo?
-The speaker intends to hold StoneCo for the long term, with a focus on its guided growth until 2027, and may consider profit-taking or continuing the investment journey based on future guidance and market conditions.
Outlines
📉 Stock Performance and Founder's Departure
The paragraph discusses the recent stock performance of Stone Co, highlighting a significant drop after earnings were reported. The main reason for the stock's decline is the departure of the founder, Andre, from his role as chairman of the board. Despite this, the speaker downplays the significance of the drop, noting the company's impressive 82% increase over the past year. The focus then shifts to Stone Co's competitive advantages, emphasizing its extensive reach with over three million small businesses and presence in 5,000 cities across Brazil. The company's superior service, as evidenced by quick response times, is also highlighted as a key competitive edge. The speaker ponders the potential impact of generative AI on Stone Co's customer service in the future.
🚀 Strategic Growth and Platform Expansion
This paragraph delves into Stone Co's strategic priorities for growth, which include expanding their customer base, particularly among medium and small-sized businesses. The company has successfully increased its client base to 3.5 million, with a significant addition of new businesses in 2023. The focus is also on driving customer engagement and increasing the take rate by restarting the credit portfolio. The speaker discusses the company's transition towards becoming a platform that serves a variety of needs, from ERP software to banking and payments. Additionally, Stone Co is sharpening its strategic focus by implementing zero-method budgeting and cost management methods, and by concentrating on key verticals such as retailers, gas stations, and food stores.
💰 Financial Performance and Banking Services
The speaker assesses Stone Co's financial performance, noting a 20% year-over-year growth in total revenue and a faster increase in adjusted net income and EBIT. Despite the company's focus on profitability over revenue growth, the speaker expresses a desire for higher revenue growth. The paragraph also covers the growth of Stone Co's payments client base, which is in hyper-growth mode, and the company's efforts to increase the average revenue per user. The banking segment's growth is highlighted, with a 50% increase in client deposits and a threefold increase in active clients. The speaker acknowledges the potential for exponential growth in this area and discusses the company's cautious approach to lending and credit portfolio management.
📈 Long-Term Outlook and Investment Strategy
The speaker shares their long-term investment strategy regarding Stone Co, despite being disappointed by the lower-than-expected revenue growth. They calculate a conservative estimate of 21% revenue growth for the next 12 months, considering transaction volume growth and slight take rate expansion. The speaker also accounts for the addition of new customers in 2024. Despite the company's current valuation being penalized in the speaker's spreadsheet due to not having high revenue growth, it is still considered very cheap, trading at two times sales. The speaker expresses their intention to hold onto the stock, with a focus on the long-term guide until 2027, and mentions the possibility of buybacks in the future. The speaker concludes by reiterating that the discussion is not investment advice and is for entertainment purposes only.
Mindmap
Keywords
💡StoneCo
💡Earnings Report
💡Stock Performance
💡Founder's Role
💡Competitive Advantage
💡Platform Model
💡Customer Satisfaction
💡Strategic Focus
💡Generative AI
💡Lending Business
💡Enterprise Value
Highlights
StoneCo's stock performance, with a significant drop after earnings report and a sarcastic comment on the 7% drop.
The stock's impressive year-long performance, being up 82% despite the recent drops.
The departure of StoneCo's founder, Andre, from his role as chairman, which seems to be a cause of concern for the market.
StoneCo's competitive advantage in the marketplace, highlighted by its vast reach to over three million small businesses.
The company's presence in 5,000 cities, covering 99% of the service GDP in Brazil.
StoneCo's superior service, with a phone response time of less than five seconds for payment issues.
The potential role of generative AI in the future operations of StoneCo, possibly affecting cost savings and customer service.
StoneCo's strategic shift towards becoming a platform that can serve various needs beyond payments.
The company's focus on efficiency and cost management, including zero method budgeting and organizational restructuring.
StoneCo's strategic decision to offload less profitable customers and focus on key verticals.
The company's growth strategy, aiming to expand its client base and increase transaction processing volume.
StoneCo's focus on customer engagement and increasing the take rate by restarting the credit portfolio.
The company's banking service growth, with a 50% increase in client deposits and a 3x increase in active clients.
StoneCo's lending business and its potential for exponential growth, despite current small numbers.
The company's cash-rich status with 5.1 billion RIS in total and a strong balance sheet.
The new CEO's guidance strategy focusing on the bottom line rather than revenue, which presents a challenge for revenue growth-focused investors.
StoneCo's long-term guidance until 2027, indicating a commitment to growth and profitability.
The investor's decision to hold onto StoneCo stock despite the recent revenue growth disappointment, based on long-term potential.
The investor's strategy to concentrate holdings on best convictions, anticipating a market reaction to dropping interest rates.
Transcripts
hello everybody so today I want to talk
about Stone Co stonier stonier has
reported earnings yesterday and the
stock was down about 10% after hours and
at the end of the day today it's down a
stunning
7% roughly right
6.8% uh I'm being sarcastic of course
because I'm showing the past year
performance for this stock and over the
past year it is up
82% H today down 6% I don't think we can
read much in into it the only thing we
can read it into it was um you can see
that from an analyst question um it
seems like much of a reason of of the
drop and analysts having qu received
question from a client or two was saying
that it's because the founder of the
firm Andre um Andre founder of a firm in
2012 that founder is stepping away from
his role on the board and his role as
the chairman but will be um electing the
next chairman and stays stays really
involved in the company but but today
you really only owns 7% not moving from
away from the company but just not the
chair of the company anymore so stonier
is not a Founder Le firm anymore and
this is the reason why the market I
think is worried is they just have the
founder who's not going to be the chair
of the board anymore I don't think it's
a big deal when I started my position in
in this in this stock in this company I
knew that it was not founder Le anymore
um we know that some some people some
investors refuse to invest in companies
that are not founder Le if that's a
problem for you I understand why you
would not be uh interested in uh stoneco
but moving on to Stone c um there's two
more things that I want to say as far as
their competitive Advantage goes we've
received more information if you read
the letter to shareholders you know that
they see their competitive Advantage
they see their advantage in Marketplace
as three things one of them is that they
they are a very vast reach right more
than three million small businesses use
them but we we got new info including
5,000 cities they are in 5,000 cities
covering 99% of the service GDP in
Brazil so this is a pervasive business
of course the people who use St may use
other services as well it doesn't mean
they just use Stone but they are stonia
enabled right right 5,000 uh places have
stonia over very working for them then
they are they are they identify Superior
Service as the reason for why why
they're doing well if there is a problem
with a payment they answer a phone in
less than five seconds one thing that
that comes to mind with with this for me
is what's going to be the role of
generative AI in the coming years for a
company like St stonia are they going to
be able to save a bunch of cost because
maybe they're going to have gen AI
respond the phone whenever there's a
problem instead of having real human
agents
but anyways because of that they a
leader in customer satisfaction there's
other stocks I invested in I invest in
for example like n phase who have
similar great customer satisfacation
service that helps them win in the
marketplace and you know the the the
best example of a customer Centric
company obviously is Amazon Amazon being
the customer at the center that helps
Drive sales and lastly we're moving
towards a a platform and the platform
that's that's what we saw the last time
uh the last investor day and the last
time I covered it I was showing showing
this this is what they mean when they
have their brick approach between today
and 2027 they want to move to an
approach where they are a platform and
they can serve many needs from The Firm
from an Erp type software for a gas
station to the bank to the credit and to
the payments so they have this vast
expansion plan and that's what they call
their merchant platform that's going to
enable them to do much more than just
payments another thing that I wanted to
add is that they are sharpening their
their strategic Focus this is a company
that's uh driven by efficiency and that
wants to become more and more efficient
they did a few changes like a a a a zero
method budgeting a zero budget and cost
management methods that they've
implemented that's one aspect another
aspect is organizational structure
resign so that there's clear um uh
manager employee relationships but
they've also uh sharpened their
strategic focused in one way that I
think is interesting is that they are
they are
offloading customers that bring less
money they are offloading some costly
customers and they're focusing on the
the key verticals and you know it's even
more than the 8020 for them it's more
like a like a 955 for them and this
vertical most of their business
comprises retailers gas stations food
stores and drug stores which which is
which is a lot of businesses that's a
lot lot of of businesses in Brazil and
so I think that's going to continue
going forward and and stone go of course
is more than sayfe for example a company
like toast who only does food know they
do much more than food and I I think
it's very wise to concentrate on your
biggest segments when we look at the
Strategic priorities that they talk
about how are they going to grow well
one of them of course is to keep gaining
new customers new clients in the
marketplace in the M medium size and
Smalls size businesses payments business
total payments business you can see I'll
get to this in a second but they
increased their client base to now 3.5
million they have 3.5 million customers
that have the device in 2023 they added
9
145,000 businesses using stone cold so
this is this is a company that's growing
very fast as far as the base of client
goes uh growing also very fast uh from a
transaction processing volume uh here
and it's 20% year-over-year of course
another thing that they want to say is
they drive engagement and for that they
want people to use their product this is
what they're call calling making money
they make their money their way and
they're trying to make money by
increasing the take rate by restarting
the credit portfolio although I'm not
including this as anything meaningful if
anything a lot of investors are worried
but restarting this credit portfolio
will make investors value stoneco more
like a bank and not value it like a
payments company I I don't think that's
a risk to worry tooo much about I mean
Square in the US does the same thing
they do lending just the same and a lot
of other companies do that so I'm not
too worried about that and then their
platforms scaling through platforms
their platforms that means selling more
to the same customers expanding the
platforms and if you look at the
business the business is doing well it
grw 20% year-over-year um as far as the
total revenue goes so again not not as
high as as I was expecting you know I I
easily admit that not nearly as high as
I was expecting but still much higher
than most businesses uh that I that I
that I that that are available out there
for the business I cover for the
businesses I cover on the channel it's a
little low I was hoping for something
better but this is a company that's
focusing on profitable growth and
profitability so the adjusted net income
is is going up much much faster than the
total revenue same for their EBT going
faster growing faster than Revenue this
is a comp
that's focusing on uh growing its
profits more than it is focusing on
growing its Revenue I like to see
companies focus more on growing Revenue
as well as the rest but uh that's not
the market that we're in right now and
that's not what the pressure of the
shareholders the shareholder pressure is
not towards that which is too bad in my
view that's okay the payments client
base this is still growing in hyper
growth mode as at 37% year-over-year
growth almost 3.5 million small
businesses use Stone I love to see that
these are client-based are getting
unboarded and that with time will'll
spend ever more money on the platform
transaction volume is up 20% take rate
is up very very slightly but it's they
guided that it will be more up leaning
towards
2.5% I mean this is small of course and
they are starting from a very low base
on their credit a little bit of a higher
base on their banking but you know I
want to pay pay your you know call your
attention to their banking service and
their banking product if you look they
they've um increased client deposits by
50% so that is really good right here
and they've increased active clients by
3x between uh 4q 2022 and 4 q 2023
that's a free x right from almost 700
million to almost 2.1 million and
700,000 sorry not million so they have a
lot of small businesses that are taking
on that banking offering and and and
they are going to make the average
revenue per user you know it it it took
a took a took a slump and I don't really
know why it did that but it's going to
it's going to go back up and move back
up the revenue per banking users so they
are growing that banking segment that
you see right there in in in this chart
that they released on investor day they
are growing banking this could yield to
some exponential growth and of course
they are also growing their their loans
and and their Lending they did a 2.7
next to their lending keeping in mind
that this this this is not too
meaningful just yet at 3 39 million R is
not is not not that high for for now
especially given how much cash they have
on a valance sheet they they are still
not in in the stage where this is
Meaningful but of course they are
putting some loan money aside loan
Provisions for their non-performing
loans and U they've worked so many years
to try to improve for credit portfolio
and try to improve their credit Landing
standards so that they don't have
defaults like they did back in 2021 and
even though Market is still cared about
this this scared about this this is a
way for them to grow Revenue quite a bit
because a lot of people want to borrow
money and if you can find a way to land
money safely to them you can grow your
business quite a bit but I'm not
counting either of this Revenue in my uh
General estimates of Revenue growth
which I'll get to in a second um as I
like to joke company is in the cash
piling bus business they are still in
the Cash bying Link business they have
now at 5.1 billion RIS total that is
exactly 1 billion US of net cash on the
balance sheet so this is a company that
is that is Cash rich and can Finance its
operations it's a it's a five billion
dollar Enterprise Value company so about
20% of that is is is is cash and balance
sheet keeping in mind they have a little
more than 700 million of long-term debt
so this is also something to keep in
mind but nothing um nothing to
concerning in my view now the new CEO
and the new CEO has been there a year in
and and the new CEO guides in a way that
I don't really like you know they don't
guide on Revenue anymore they're guiding
uh to the bottom line and so that makes
it much harder for me because I'm a
revenue growth uh type of guy you know
I'm all about Revenue growth so this
makes me makes it a little much harder
for me in my spreadsheet one thing about
the guidance that they' reiterated today
you know in the report yesterday is that
it is the same as the one that was given
on invest St day so the guidance has not
changed which is very reassuring you
know the market would have been worried
if the guidance changed no the guidance
they're sticking to it it's the same
guidance so the video that I made a few
months back talking about a 3.9x in F in
in in a fouryear period theoretical
right theoretically that video still
holds if I can AI achieve that end of
20127 and those 2027 growth numbers that
that's still an outstanding return of a
long run
um transaction volume and and and net
income growth guide you know it's 18%
for 2024 and
22% so this is this is a business that's
roughly growing at a 20ish per rate
guiding for 2024 uh except for their
credit their credit portfolio they're
guiding a growth
of 160% in their credit portfolio that's
a 2.6 SE so we're going to we're going
to see hyper growth when it comes to the
credit portfolio we're going to see some
hyper growth of that and we'll have to
see whether the market likes that or not
um as far as I'm concern that that
doesn't bother me I find that I I I find
it good that they're getting back into
this and they fixed their issue you know
especially as we see more interest rates
drop this is going to be a very
profitable business for the next next
years to come the lending business in my
view once again so what can I say well
let me tell you this um yes clearly 40%
Revenue growth is is 200 High expecting
40% Revenue growth I was just reusing
the analyst number in my prior videos
that that is too high but the question
is what's what's what's Revenue growth
actually going to be so this is this is
how I'm going to calculate it I'm I'm my
conservative view on Revenue growth is
that it's going to be 21% over the next
12 months how do I get to that well the
volume transaction volume guided they
guided 18% growth in the transaction
volume so Revenue growth theoretically
should be at least 18% right assuming
the take rate doesn't change much that
should be at least 18% but I'm going to
assume that there's going to be a slight
take rate expansion they've guided for
that so we've got it for a slight take
rate expansion so that leads us to 90%
if you round it up and then from
19% we do know that stoneco St is
offboarding as they say some
non-profitable customers but given that
over the past 12 months in 2023 they
grew the number of clients by 37% I
think it's naive to assume that the the
clients are not going to grow there's
going to be more clients too and so my
assumption for that is that they they
are going to see about 10% more new
customers in 2024 so in my view if I if
I just just increase that by my 19%
number by 10% I'm getting at a 21%
Revenue growth and that's what what what
I'm going to assume that this business
is growing at 21% I mean not all that
different from the
18% and this is where this business
shines because as you know if you follow
the channel my spreadsheet
penalizes greatly companies that don't
have high Revenue growth if you don't
have high Revenue growth more than 30%
you're going to be penalized by my
spreadsheet so I consider stonia to be
penalized at a 21% and it is still
showing a very very very cheap number at
a
0.13 and it is still showing a rule of
40 with
67 what does that that mean if Marin 46%
what that means is that this is this is
a highly profitable take rate business
that I'm happy to owe and I'm happy to
see them Implement you know probably
more Buybacks in the year to come if
they don't want to spend that money on
lending on of growing the business in
know in know in other ways and I'm
getting there by using 21% Revenue
growth right Enterprise Value over
Revenue here is a two this is a a
business that's roughly trading at two
time sales so that's that's very cheap
for that type of business now if you
start assuming
30% you are getting at a 0.09 so that
would be cheaper than a stock like H and
if you know this channel H is a stock
that I that I enjoy very much and talk
about very much and if you assume 40%
growth that business would be grow would
be a
0.07 so again twice as cheap as uh what
I'm seeing it right now so very cheap
business definitely still top quarter it
is still verify the a very rarely do I
show you a business that has a
0.13 very rarely so this business is
still dirt cheap and as a reason for
that even though I am disappointed by
that Revenue growth that's not going to
be 30 plus% I'm disappointed by that but
this is not enough of reason no reason
for me to take a profit especially
because I'm up on the stock and because
I'm up on the stock I would have pay
capital gains uh when I buy a stock it's
you know I like to think for a decade at
the very least unless something changes
this company has guided until
2027 that's a long-term guide and I'm a
long-term investor and so right now I am
waiting until 2027 2028 to see uh what
they're guiding then and where we're at
and to see if I'm taking profits then or
staying on that Journey but for now I am
definitely staying on the stonier train
and keep in mind that all that that is
all knowing some of the stocks that I
like better are not that cheap right now
you know all bets are off if him goes
back to six bucks and or and or Tesla
goes to 100 or if some other stocks
become super cheap all bets are off I am
trying to concentrate my Holdings
concentrate my portfolio right now on my
best convictions and that is because
interest rates will drop this year and
we know what happens to the market when
the interest rates go down so anyways
this was obviously not investment advice
no Financial advice I love Costco just
as much as I always have um I don't
think the the movement of a stock is
that meaningful but today no Financial
advice no investment advice and never
never never that not just today this is
entertainment I hope you were
entertained please like Please Subscribe
thank you for watching and have a
wonderful day
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