StoneCo released its 2022 Q3 earnings. Here are the key points that you don't want to miss for StoneCo from this earnings!
In 2022 Q3, StoneCo executed and grew well, with good long term prospects, and with its banking business and credit business expected to provide a boost to the company’s profit growth in 2023 and 2024 onwards respectively.
Although its share price jumped ~17% after earnings, the price is still significantly undervalued (with reference to our calculations in our previous earnings update in 2022 Q2).
In summary:
StoneCo continued to grow its number of clients (+71% y/y, or +12% q/q) and revenue (+84% y/y, or +10% q/q)) well.
Its repricing efforts (in catching up with the increased interest rate) for its prepayment business (which started mainly in 2022 Q1, slowed down in 2022 Q2, and ramped up in 2022 Q3) have been showing good results, improving StoneCo’s gross profit margin, with more rooms for improvements in 2022 Q4 and 2023.
Its overall profitability improved, due to higher gross profit margin, with its operating leverage in administrative costs offset by an increased spending on marketing, with the overall profitability improving in both the financial services and software segments.
The banking business has grown well, on both the number of accounts (+33% y/y, or +7% q/q) and average revenue per client (+139% y/y, or +12% q/q). Although the management does not explicitly state the relative importance of that business to overall profits, some quick calculations highlight that it could start becoming a major profit driver soon. We are also checking with StoneCo’s team on the actual profitability of this segment, and will update you if we hear anything material.
Its credit business, which it had paused since mid 2021, is slowly restarting, with it testing out loans in working capital and credit cards, which it expects to ramp up in 2023 after evaluating the economics from a full credit cycle, so the impact on profits would still be immaterial in 2023, but potentially significant thereafter.
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