STNE Stock: Why the Buffett-Backed Fintech StoneCo Is Getting Slammed Today

Shares of StoneCo (NASDAQ:STNE) are facing a 34% decline today after reporting third-quarter results. The price action depicts a scene that shows shareholders were very unhappy with the numbers.

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Beyond the significant drop, there is another reason this news matters. Famed investor Warren Buffett is a major investor in STNE stock, owning 4.05% of the float. According to Whale Wisdom, Buffett first purchased shares in Q4 of 2018 and has decreased his position significantly since then. The Brazilian fintech company is Buffett’s 32nd largest position out of 46 total.

Shares of STNE stock are down 75% year to date (YTD) after today’s disastrous price decline. In hindsight, putting money in the S&P 500 would have been a much better investment, as it has returned 27% YTD.

Let’s take a look into StoneCo’s Q3 earnings report.

STNE Stock Q3 Highlights

  • StoneCo reported revenue of 1.47 billion Brazilian reais (BRL), up 57% year over year (YOY)
  • Total payment volume was 75 billion BRL, up 7.6% YOY.
  • Total active payment clients (excluding micro-merchants) was 1.39 million, up 111% YOY.
  • Take rate decreased to 1.66%, compared with 2.36% a year ago.
  • Digital active banking accounts totaled 422,500, up 300% from a year ago.
  • Adjusted net income excluding non-cash items was 132.7 million BRL, down 54% YOY.
  • However, the company reported a net loss of 1.26 billion BRL due to a write-down on the value of their investments.
  • Earlier this year, StoneCo bought a 4.99% stake in Banco Inter. This investment turned sour after shares of Banco Inter tanked, hitting StoneCo with a 1.34 billion BRL loss during Q3.
  • Additionally, StoneCo paused its small and medium-sized business credit product during Q3. This had a negative effect on income during the period.

What’s the Outlook for StoneCo?

For long-term investors looking to acquire shares of StoneCo at a reduced price, buying this dip may be a great opportunity. However, Brazilian macroeconomic factors, such as the prevalence of Covid-19, high unemployment, and inflation could drag down Brazilian-based stocks as a whole. As a fintech company, StoneCo is especially susceptible to these factors. Brazil also recently raised interest rates by 150bps to 7.75%.

On the bright side, StoneCo reported excellent growth in customers and revenue. The company continues to make significant investments and acquisitions that may hamper price action in the short term. As of now, StoneCo remains a high-growth company in a struggling economy.

On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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