StoneCo Ltd Q1 2020 Total Revenue beats the estimates but the Earnings miss the mark

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StoneCo Ltd Q1 2020 Total Revenue beats the estimates but the Earnings miss the mark

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StoneCo Ltd. (NASDAQ: STNE), a leading provider of financial technology solutions based in Brazil, providing end-to-end cloud-based technology solutions to businesses. On 26 May, 2020 they have released their earnings report for the first quarter ended March 31, 2020.

Growth in Revenue

In the first quarter of 2020, the company reported total revenue and income of R$716.8 million. This is an increase of 33.8% from R$535.8 million in the first quarter of 2019. The growth in total revenue and income was primarily by the 42.1% increase in Total payment value (TPV).

Total Revenue and Income grew 38.3% to R$679.7 million in the first quarter of 2020, excluding Other Financial Income mainly comprising interest on cash.

Net Revenue from Subscription Services and Equipment Rental

Net Revenue from Subscription Services and Equipment Rental was R$93.1 million in the first quarter of 2020. This is a 30.8% increase from the first quarter of 2019. The key reason behind this was the higher number of SMB Active Clients, partially offset by lower average subscription per client, which is mainly a result of additional new-client subscription incentives. This also included R$4.1 million of COVID-19-related incentives given in March 2020 to the most harshly impacted sectors.

Financial Income

Financial Income was R$359.3 million in the first quarter of 2020. It has an increase of 42.9% year over year, primarily due to the 42.1% growth in TPV year over year combined with a higher prepayment penetration over credit TPV and some contribution from our credit offering. Financial Income was negatively affected by R$21.1 million in the quarter mostly due to higher provisions for expected delinquencies in the credit solution. Also, the incentives in prepayment rates for some clients that were more severely affected by the global.

Other Financial Income amounted to R$37.0 million in the first quarter of 2020 with a drop of 16.7% compared to the first quarter of 2019. The main reason for the decrease was the lower base rate, which resulted in lower yields on the Company’s cash balance and shortterm investments.

Adjusted Net Cash

The FinTech company reported an Adjusted Net Cash position of was R$5,053.1 million for the quarter ended March 31, 2020, compared with R$4,984.8 million on December 31, 2019. Indicating an increase of R$68.2 million, an increase of about 1.36%.

Following are the factors that led to the increase:

  • Cash and Cash Equivalents along with Short-term Investments increased from R$3,905.4 million on December 31, 2019, to R$3,925.6 million on March 31, 2020. This is a 56.83% increase compared to the last quarter.
  • Loans and financing along with Obligations to FIDC quota holders decreased from R$6,622.9 million on December 31, 2019, to R$6,157.6 million on March 31, 2020. The R$465.3 million decrease happened as the company was able to partially amortize its FIDC obligations
  • The company reported that the amortization was mostly funded with higher sales of receivables. This is supported by the fact that Accounts Receivable from Card Issuers, net of Accounts Payable to Clients decreased R$554.4 million, from R$7,566.7 million on December 13, 2019 to R$7,012.4 million on March 31, 2020.
  • The Company also invested R$183.8 million in its Loans Held for Sale, going from R$124.7 million on December 31, 2019, to R$308.5 million on March 31, 2020. The Company expects to fund its Credit business with third-party funding as soon as the market conditions recover from the impact of the pandemic
  • Finally, derivative financial instruments net position decreased to a negative position of R$35.7 million on March 31, 2020, from R$11.0 million on December 31, 2019.

Net income and EPS

The company reported Adjusted Net Income of R$162.3 million in the first quarter of 2020, with a margin of 22.6%, compared with R$186.3 million and a margin of 34.8% in the first quarter of 2019. Adjusted Net Margin was 12.5 percentage points lower Compared with 4Q19

Stone Co’s Net Income was R$158.6 million in 1Q20 compared to Net Income of R$177.0 million in 1Q19. Its Net Margin decreased to 22.1% year over year in the first quarter of 2020, a drop of 10.9 percentage points.

Adjusted diluted EPS for the Company was R$0.58 per share in the first quarter of 2020, 12.7% lower than in the first quarter of 2019, mostly explained by the 12.9% lower Adjusted Net Income. GAAP basic EPS was R$0.57 per share, a decrease of 10.4% year over year, explained by the 10.4% lower GAAP Net Income in the period.

Outlook for the Second Quarter of 2020

The company shared a forward-looking guidance for the second quarter of 2020, based on the trends that have identified in the quarter to date.

StoneCo anticipates an Adjusted Pre-Tax Margin for 2Q20 to be positive, at between 20% and 24%. The estimated range takes into account the negative effect on Pre-Tax Income of one-off severance expenses related to the reduction in its workforce announced on May 12. Also, considered the one-off expenses related to temporary incentives we are giving clients in the context of COVID-19.

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