I have recently invested in STNE and this business has all the attributes this board cherishes - a newly listed, hypergrowth story with a long runway for growth.
Added bonus is a super cheap valuation.
Details are provided below -
Fintech merchant acquirer business in Brazil; founded in 2012
Sells POS payment devices to SMBs and SMEs, which enable these merchants to accept credit/debit card payments
Company provides solutions for offline, online and mobile channels
4th largest market share in Brazil (6.1%); behind Cielo, Rede and GetNet - Pageseguro is in the 5th position
Company prides itself for its customer-centric approach; provides exceptional customer service at competitive rates
Business also provided enterprise software solutions, analytics etc so merchants can track payments, business data
Three sources of revenue - payment processing fees, POS device rentals and financial income (net margin on providing finance to merchants)
The company’s take rate has increased to 1.87% from around 1.5% in 2017; so payment processing is becoming more lucrative
Initially, the business targeted larger merchants but now it is going after micro-merchants as they generate a higher take rate due to lack of options
In Q3 '18, revenue grew 121% yoy; number of merchants increased to 234k (+127% yoy) and Total Payments Volume rose 84%
Company has recently beefed up its sales force and is opening lots of StoneHubs (1 per week) to attract new merchants/provide good service
The company completed its IPO in October 2018 at $24, stock quickly popped to $32 and is now down to around $18 (due to market sell-off)
Business was founded by two guys; both experienced entrepreneurs in the Brazilian fintech/payments space
Management team is solid and deep
Berkshire Hathaway owns 11% of the shares, Walmart family owns 20%, Alibaba invested US$100m, Jorge Paulo Lemann is an investor
T. Rowe Price is a major shareholder and so is the ex-Chairman of the Brazilian central bank
Valuation - 2019 EPS is likely to come in around $0.80, so business is trading at 22.5 times forward earnings which is cheap (0.5 PEG!)
Fintech in Brazil has a long runway for growth and the company has plans to expand overseas in South America
In my view, this business will benefit from two major secular tailwinds -
a. Digital payments/fintech
b. e commerce
Both of these areas are still in their early innings in Brazil; so STNE’s hypergrowth could continue for many years AND with so many billionaire investors backing this business, it could turn out be a big winner.
One could argue that STNE is Latin America’s SQ but please don’t go by my word, do your own due diligence. Here is the website - https://www.stone.co/