StoneCo Is Still Cheap, Still Growing, and I'm Still Buying! (Q4 & FY 2023 Earnings Review)

Summary

StoneCo, 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

00:00

📉 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.

05:02

🚀 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.

10:04

💰 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.

15:06

📈 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.

Keywords

💡StoneCo

StoneCo is a Brazilian financial technology company that provides payment solutions and business management services. In the video, the speaker discusses the company's recent earnings report, stock performance, and strategic direction. The company's focus on customer satisfaction and its expansion into a platform model are highlighted as key competitive advantages.

💡Earnings Report

An earnings report is a formal record of a company's financial performance over a specific period, typically a quarter or a year. It includes information on revenue, expenses, profits, and other financial metrics. In the context of the video, StoneCo's earnings report is used to analyze the company's stock performance and future prospects.

💡Stock Performance

Stock performance refers to the change in the market value of a company's stock over time. It is often used by investors to evaluate the success of a company and to make decisions about buying or selling shares. In the video, the speaker is particularly interested in StoneCo's stock performance following its earnings report and the reasons behind its fluctuation.

💡Founder's Role

The founder's role in a company refers to the contributions and influence of the person who established the business. Founders often bring a unique vision and leadership style that can significantly impact a company's culture and strategic direction. In the video, the speaker discusses the implications of StoneCo's founder stepping away from his executive roles, suggesting it as a potential reason for market concern.

💡Competitive Advantage

A competitive advantage is an attribute that allows a company to outperform its competitors. It can be based on factors like product quality, customer service, innovation, or cost leadership. In the video, the speaker outlines StoneCo's competitive advantages, such as its vast reach, superior service, and its move towards becoming a platform company.

💡Platform Model

A platform model refers to a business structure where a company creates a system that allows multiple parties to interact or do business with each other. This model often involves providing a service that connects users, customers, and/or businesses. In the video, StoneCo is transitioning to a platform model to expand its services beyond payments and offer a wider range of solutions to its clients.

💡Customer Satisfaction

Customer satisfaction is a measure of how well a company meets or exceeds the expectations of its customers. High customer satisfaction can lead to customer loyalty, repeat business, and positive word-of-mouth, which are crucial for a company's long-term success. In the context of the video, StoneCo's focus on customer satisfaction is highlighted as a reason for its competitive edge in the market.

💡Strategic Focus

Strategic focus refers to a company's deliberate and concentrated effort to achieve specific goals or objectives that are crucial to its long-term success. This often involves prioritizing certain areas of the business and making decisions that align with the chosen strategic direction. In the video, the speaker talks about StoneCo's efforts to sharpen its strategic focus by offloading less profitable customers and concentrating on key verticals.

💡Generative AI

Generative AI refers to artificial intelligence systems that can create new content, such as text, images, or audio. These systems are designed to learn from existing data and then generate new, similar content autonomously. In the context of the video, the speaker speculates on the potential role of generative AI in improving StoneCo's customer service and cost-saving efforts.

💡Lending Business

The lending business involves providing loans to individuals or businesses with the expectation that the borrowed funds will be repaid with interest. It is a core component of many financial institutions' operations and can be a significant source of revenue. In the video, the speaker discusses StoneCo's重启 of its lending business and how it could contribute to the company's revenue growth and market valuation.

💡Enterprise Value

Enterprise value (EV) is a financial metric that represents the total value of a company, including its equity, debt, and cash. It is used by investors to evaluate a company's overall value and is often considered a more accurate measure of a company's true value than market capitalization alone. In the video, the speaker uses enterprise value to analyze StoneCo's valuation and its potential for future growth.

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