StoneCo Ltd: Bull/Bear Discussion
StoneCo Ltd
TMT, Finance/Real Estate
02/21/2020
Presented
| Date | 02/13/2020 |
| Price | $42.01 |
| Market Cap | $11.65B |
| Ent Value | $10.34B |
| P/E Ratio | 65.56x |
| Book Value | $4.88 |
| Div Yield | 0% |
| Shares O/S | 277.37M |
| Ave Daily Vol | 2,020,148 |
| Short Int | 12.76% |
Current
| Price | $10.96 |
| Market Cap | $3.36B |
| StoneCo Ltd. engages in the provision of financial technology solutions. It caters to merchants and partners that conduct electronic commerce across in-store, online, and mobile channels. It offers cloud-based technology platform, electronic payments, and automation of business processes at the point-of-sale. The company was founded on March 11, 2014 and is headquartered in São Paulo, Brazil. |
Publicly traded companies mentioned herein: Banco Santander Brasil SA (SANB11 BZ), Cielo SA (CIEL3 BZ), Itau Unibanco Holding SA (ITUB), Mastercard Inc (MA), MercadoLibre Inc (MELI), Pagseguro Digital Ltd (PAGS), Square Inc (SQ), StoneCo Ltd (STNE), Visa Inc (V)
Highlights
On February 13, 2020, DeMatteo Research hosted a bull/bear discussion on StoneCo Ltd (STNE) and the Brazilian merchant acquirer industry. The investment threads discussed included ongoing dynamics in the prepayment business, take rates, competition, business mix shifts, and the outlook for STNE and other industry players. The most bearish presenter believes that cracks in STNE’s economics, specifically in its prepayment business, are starting to show and will be evident in the company’s Q4’19 performance (STNE will report March 2) and subsequent quarters. A second bearish participant agrees on the risk to STNE’s prepayment business and thinks that management is aware of this structural dynamic, which has led to the company pushing into credit; over the next 12 – 18 months, he thinks this new mix will lead to the earnings multiple compressing (STNE currently trades at ~42x 2020 EPS), as he believes the credit business would only garner a single digit multiple. While other bears agree with the notion of STNE’s economics deteriorating, they are less confident on timing.
On the other end of the spectrum, the most bullish presenter feels that some of the bear points are unfounded or have been disproved already. While prepayment is an issue, bulls argue that volumes can grow faster and help to offset declines in take rate. In his opinion, the risk to STNE’s prepayment business is overstated, believing a mix shift in customer base will help to offset potential declines. Its hub growth should help, as STNE is focused on opening branches throughout Brazil, and bulls point to customer volume growth at the SME level as a positive for the company’s take rate. Other bullish participants agree that the bear case is overstated, noting that STNE’s credit offering isn’t in sell-side numbers and that overall take rates will not collapse.
Prepayment Business & Take Rates
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