StoneCo (NASDAQ: STNE) is a Brazilian financial technology provider that specializes in payments, banking, and retail software. It suffered a significant setback in its credit business in 2021. Due to the intense competition landscape in the Brazilian payments processing industry, companies are making acquisitions from the field of banking and software to create an integrated solution. In 2020, StoneCo acquired Linx which is a software provider. In 2021, it acquired shares in Banco Inter.
In 2021, the company faced problems with the registry of receivables which inevitably forced the company to stop providing credit until it had collateral behind the offered loans. In the first quarter of 2021, StoneCo acquired a 4.99% stake in the digital bank, Banco Inter for BRL2,500 million which is equivalent to approximately USD 460 million. The entire stake of Banco Inter was later sold at a loss of BRL 1300, approximately USD 230 million. That’s a 50% loss.
StoneCo acquired Linx for BRL 6,700 million (USD 1,200 million) compared to the current cap of USD 3,600, which the company paid 33% of its current market cap. In the 2nd quarter, it generated revenues of BRL 384 million and adjusted EBITA of BRL64 million. Its performance is not improving.
STNE Market Cap USD 3,600
STNE Sales USD 2,583
Market Cap/ Sales = 1.39
Linx Acquisition price USD 1,200
Linx Sales USD 276
Market Cap/Sales = 4.3
Chief Strategy and Marketing Officer Lia Machado de Matos mentioned in recent earnings calls that they are still trying to sell its financial services through its software bundles. It is still not able to realize its earning potential. StoneCo is venturing deeper into banking services by building its proprietary banking platform. StoneCo’s competitor PagSeguro Digital is more advanced in its banking business than StoneCo.
It is difficult for StoneCo to improve its profitability in the short term. The strategy to grow its banking business needs to be monitored closely. Lastly, we need to understand the selling price of Linx if it happens.
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