Author Topic: STNE - StoneCo Ltd  (Read 1260 times)

valueinvestor

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STNE - StoneCo Ltd
« on: February 10, 2019, 11:58:42 AM »
I do not have any idea why Berkshire Hathaway invested in this stock, but the fact they invested in the IPO certainly made me pull the trigger when the stock went down 50% from IPO price. At the moment it is around a 30% discount from IPO price and valuation is subject to debate in my mind. I feel that there's a competitive advantage that I'm missing, such as health food snacks, where machines of traditional process snacks cannot manufacture, since the equipment is made solely for fructose syrup. Either way, I'm deciding whether I should sell, since it risen by almost 30% from my initial purchase. To my knowledge, they are a payment processing company that is growing incredible well, 100%+ yoy topline growth. Anyone has any insight to offer?


cameronfen

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Re: STNE - StoneCo Ltd
« Reply #1 on: February 10, 2019, 12:54:59 PM »
I think the thesis is that payments are under penatrated in Latin America/Brazil.  Basically a country like China is basically a cashless economy and everyone pays by smart phone apps.  Credit cards are even rarely used.  The reason is because phones are (slightly) more convinient, and because they dont need to link up to a bank account and build up the network like a credit card, the network is built by people downloading the app and linking there accounts.  Thus the main reason payment apps are superior is because compared to credit cards that charge 200-300 basis points to merchants, Alipay (i.e. ant financial) charges merchants 55 bps.  Thus for a developing country that doesnt have a history of credit card usage, smart phone apps are much more attractive.  Meanwhile despite only charging 55 bp, Alipay generates over 40 billion in revenue is worth 150 billion dollars.  Brazil's population is 1/6 of Chinas, so conceivably if it gets the same penatration, it could be worth 25 billion dollars.  If you want to compare it to paypal which probably covers a geographical area that skews developed countries and maybe 2.5x the pop of brazil, you have a valuation of 40 billion dollars.  At the same time this comparison is somewhat faulty bc paypal charges credit card like fees to merchants compared to 55 BP for alipay which is likely what stone co will roughly charge. 

other things going for it is it has the largest network in Brazil if I'm not mistaken, and so you have a virtuous flywheel with it having both the most number of merchants and consumers on the platform. 

The bear case is the valuation is very steep  at 25x revenue.  Additionally its unclear how profitable Alipay/Ant finicial will be.  Variable costs are low, but so is what it can charge merchants.  Although it seems like Stone seems to have high margins.  I'm not sure what competitors to stone look like, but Ant does compete with tencent, which may mean Stone is in a better position. 

Dalal.Holdings

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Re: STNE - StoneCo Ltd
« Reply #2 on: February 10, 2019, 01:01:07 PM »
Sounds like Buffett's buddy Jorge probably got him in on this.

In fact, looks like 3G is involved (https://www.bloomberg.com/news/articles/2018-10-22/alibaba-s-ant-financial-joins-buffett-in-hot-brazil-fintech-ipo).

Another richly valued payment processor. Certainly not traditional "value" investing, more like a VC bet if anything. Brazil not exactly stable either (ie. look at a 5 year chart of the Real to USD) and if EM's go south, it may not be a big winner in USD terms.

cameronfen

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Re: STNE - StoneCo Ltd
« Reply #3 on: February 10, 2019, 01:29:42 PM »
This inspired me to do some more digging as this has interested me on and off, (this is what I get for writing a post based on research I did 3 or 4 months ago), and just to clarify stone is more like paypal and square than ant. But the idea is still the same, you want to undercut the cost and price of financial transactions by moving things over the internet instead of middlemen.

Macro conditions in Brazil are definitely an issue. 

Munger_Disciple

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Re: STNE - StoneCo Ltd
« Reply #4 on: February 10, 2019, 03:30:07 PM »
IIRC it was a Todd Combs purchase. The position size is $300M, so inconsequential to Berkshire as a whole. Todd seems to invest in VC type deals recently. He also invested in Paytm, an Alipay like service in India in a private financing round. Paytm is backed by both Alibaba and Softbank.

gfp

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Re: STNE - StoneCo Ltd
« Reply #5 on: February 10, 2019, 05:23:32 PM »
"Mr. Combs was introduced to Stone by fellow shareholders Madrone Capital Partners, an investment firm affiliated with the heirs to Walmart Inc. founder Sam Walton, and T. Rowe Price Group Inc., according to a person familiar with the matter.

“We saw Berkshire as a very long-term investor,” said Thiago dos Santos Piau, Stone’s CEO, in an interview.

Mr. Buffett declined to comment on the Stone deal. “It’s entirely Todd’s,” said Debbie Bosanek, Mr. Buffett’s assistant, in an email. “He never comments on anything that Todd or Ted do. They have total autonomy.”"

https://www.wsj.com/articles/warren-buffetts-firm-invests-millions-in-fintech-1540807200


Sounds like Buffett's buddy Jorge probably got him in on this.

In fact, looks like 3G is involved (https://www.bloomberg.com/news/articles/2018-10-22/alibaba-s-ant-financial-joins-buffett-in-hot-brazil-fintech-ipo).

Another richly valued payment processor. Certainly not traditional "value" investing, more like a VC bet if anything. Brazil not exactly stable either (ie. look at a 5 year chart of the Real to USD) and if EM's go south, it may not be a big winner in USD terms.

RadMan24

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Re: STNE - StoneCo Ltd
« Reply #6 on: February 10, 2019, 07:50:18 PM »
Have you read the prospectus? You'd get more info there than anywhere else.

All you need to know its the first time I've seen " no bull shit" in a filing.

In all seriousness, I got interested for same reason. It took a while to get my head around it, but do the following:
  • Read the prospectus and all recent filings and recent earnings call.

  • Read about the big Brazil payment processors, just in general, the payment processor industry in the mid to small business market (i.e. neglected market, several years of recession, stoneco offers improved working capital management, lowers cost and friction with customers, boosts sales, keeps customers happy with excellent service, repeat).

    • Read about Square.

    • And watch for inflection point in earnings. StoneCo could earn $1b reals in the new fiscal year.

Then sit back and think. It'll come to you.

valueinvestor

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Re: STNE - StoneCo Ltd
« Reply #7 on: February 10, 2019, 08:19:58 PM »
Have you read the prospectus? You'd get more info there than anywhere else.

All you need to know its the first time I've seen " no bull shit" in a filing.

In all seriousness, I got interested for same reason. It took a while to get my head around it, but do the following:
  • Read the prospectus and all recent filings and recent earnings call.

  • Read about the big Brazil payment processors, just in general, the payment processor industry in the mid to small business market (i.e. neglected market, several years of recession, stoneco offers improved working capital management, lowers cost and friction with customers, boosts sales, keeps customers happy with excellent service, repeat).

    • Read about Square.

    • And watch for inflection point in earnings. StoneCo could earn $1b reals in the new fiscal year.

Then sit back and think. It'll come to you.

Haha, this is probably one of the best post I've read in CoBF.

Jurgis

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Re: STNE - StoneCo Ltd
« Reply #8 on: February 13, 2019, 12:04:28 PM »
Have you read the prospectus? You'd get more info there than anywhere else.

All you need to know its the first time I've seen " no bull shit" in a filing.

In all seriousness, I got interested for same reason. It took a while to get my head around it, but do the following:
  • Read the prospectus and all recent filings and recent earnings call.

  • Read about the big Brazil payment processors, just in general, the payment processor industry in the mid to small business market (i.e. neglected market, several years of recession, stoneco offers improved working capital management, lowers cost and friction with customers, boosts sales, keeps customers happy with excellent service, repeat).

    • Read about Square.

    • And watch for inflection point in earnings. StoneCo could earn $1b reals in the new fiscal year.

Then sit back and think. It'll come to you.

What do you think about competition? https://seekingalpha.com/article/4240488-comparing-pagseguro-stoneco-square
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Spekulatius

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Re: STNE - StoneCo Ltd
« Reply #9 on: February 14, 2019, 04:28:45 AM »
There is also Cielo, the large incumbent, which reports competitive pressure (presumably from Stoneco and Pagsugero. Seems like and interesting industry.

https://finance.yahoo.com/quote/CIOXY?p=CIOXY
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