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Why was this Fintech supported by Warren Buffet able to increase its profits?

Financial technology and e-commerce are two of the biggest megatrends that will continue to gain momentum in 2019. One of the most observed new players in the field is Stone Co (WKN: A2N7XN), the Brazilian fintech company backed by the famous CEO of Berkshire Hathaway (WKN: 854075) (WKN: A0YJQ2) CEO Warren Buffett. It was not until October 2018 that Stone Co went public, and after falling more than 40% in the months following, it found its way back to the end of December, gaining nearly 130% of its low. Stone Co published its results for the second time since its public debut on …

Fintech and e-commerce

Financial technology and e-commerce are two of the biggest megatrends that will continue to gain momentum in 2019. One of the most observed new players in the field is Stone Co (WKN: A2N7XN), the Brazilian fintech company backed by the famous CEO of Berkshire Hathaway (WKN: 854075) (WKN: A0YJQ2) CEO Warren Buffett. It was not until October 2018 that Stone Co went public, and after falling more than 40% in the months following, it found its way back to the end of December, gaining nearly 130% of its low.

Stone Co published its results for the second time since its public debut on the stock exchange. In the fourth quarter, the company reported sales of 529 million Brazilian real (about 139.5 million US dollars), 114% more than in the previous year. This far exceeded the analysts’ expected US $ 123.66 million. Adjusted net income of $ 155.9 million (approximately $ 41.1 million) increased 646% year-on-year, resulting in diluted earnings per share of $ 0.51 ($ 0.13), which represents a decrease of Expectations and is significantly better than the loss per share of 0.06 Reals (0.02 USD) in the same quarter last year. As a result of these results, the Stone Co share increased by 20% in after-hours trading.

Improvement of the key figures

Stone Co reported a significant improvement in each of the key operational metrics it delivers. The total payment volume (TPV) – the total amount of payments processed – grew to 26.6 billion reals (7 billion US dollars), 74% more than in the previous year.

The number of active customers rose to 268,000 and thus more than doubled compared to the same quarter of the previous year. The take rate rose to 1.88% in the fourth quarter, up from 1.58% in the year-ago quarter, an improvement of 30 basis points.

The company achieved a significant improvement in each of its revenue segments. Transaction activity increased to 174.4 million reals (approximately 46 million US dollars), 109% more than in the previous year, due to the increase in TPV. Subscription services and equipment rental of $ 69.5 million ($ 18.3 million) increased 138% year-on-year, mainly due to the increase in small and mid-sized businesses. Financial income of $ 255.8 million ($ 67.5 million) increased 98% year-over-year, driven by higher customer numbers and higher TPV. Other financial income of $ 29.6 million ($ 7.8 million) increased 372% year-on-year due to IPO proceeds and short-term investments.

At the same time, total cost of sales was 44.1%, compared to 68.5% in the year-ago quarter, as the company achieved large operating debt as the business continued to scale. This led to an improvement in the net margin to 24% versus negative margins in the same quarter last year.

Stone Co continues to focus on adding functionality to its platform. His software solutions are making good progress and penetrating more with the customer using the subscription model.

Although the company has not provided specific figures, 14,000 customers use at least one type of company software, and the customer portal dashboard and mobile application account.

It was not Buffet

Berkshire Hathaway invested $ 340 million to acquire 14,666,748 Stone A’s Class A shares related to the IPO at a price of approximately $ 24 per share. A report in the Wall Street Journal revealed that it was not really Buffett, but Todd Combs – one of Buffett’s portfolio managers – who was responsible for the selection.

Stone Co said in its registration statement that it is already the fourth largest payment processor in Brazil, in terms of total payment volume. An impressive achievement for a company of its size. It’s still too early to say if this investment is ultimately worth it, but Stone Co has certainly started well.

Published inFintech

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