StoneCo reports strong financial performance in Q4 2024, exceeding targets and aiming for continued growth
From Nasdaq: 2025-03-18 23:30:13
StoneCo held its Q4 2024 earnings call, reporting strong financial performance despite market challenges. CEO Pedro Zinner highlighted key achievements, including exceeding performance targets in MSMB Card TPV, deposits, take rate, credit portfolio, and net income. Looking ahead to 2025, StoneCo aims to continue outpacing market growth and expanding its share of the MSMB payments market. The company’s focus on enhancing client engagement and scalable platform growth resulted in a successful year, with net income reaching BRL 2.2 billion. StoneCo remains committed to simplifying clients’ financial lives and providing needed solutions. The company delivered strong results in the quarter despite challenges in the macroeconomic environment. Key highlights include a 22% growth in adjusted EBIT and an 18% growth in adjusted net income. Total revenues increased by 11% year-over-year, driven by growth in the client base and higher monetization. Gross profit reached BRL 1.7 billion, growing by 13% year-over-year. The financial services segment saw a 19% increase in MSMB payments active client base and a 21% increase in MSMB TPV. The banking segment experienced a 46% growth in active client base and a 42% increase in retail deposits.
The company decided not to increase prices for clients in the quarter due to the important holiday season. Despite facing a hit in financial expenses from higher rates in the fourth quarter, the company focused on client engagement and healthy unit economics. The MSMB payments active client base grew by 19% year-over-year, while MSMB TPV increased by 21%. The banking segment saw a 46% increase in active client base and a 42% growth in retail deposits, reaching BRL 8.7 billion by year-end. Time deposits experienced a 3.6-fold increase, driven by the saving solution. The company plans to shift from retail deposits to on-platform time deposits to reduce operational costs and improve capital structure. Credit portfolio reached BRL 1.2 billion, with a healthy credit quality despite macroeconomic challenges. Financial services segment grew revenues by 11% year over year, with an adjusted EBIT growth of 16%. Software segment revenue increased by 15% year over year, with adjusted EBITDA posting a 54% growth. The company recognized a goodwill impairment charge of BRL 3.6 billion for softer cash-generating units in the software division due to challenging macroeconomic conditions. Multiple proposals for strategic alternatives for software assets have been reviewed, but none have met the company’s value assessment. In the latest financial report, cost of services increased 10% year over year and 2% sequentially, while administrative expenses decreased by 2% year over year. Financial expenses increased by 10% year over year and 14% sequentially. Adjusted net cash position decreased by BRL 0.2 billion, reflecting ongoing share repurchase activity. The company has an excess capital of over BRL 3 billion, with plans to return the capital to shareholders over time. Guidance for 2025 focuses on adjusted gross profit and adjusted basic EPS to reflect business performance and capital structure optimization.
The company continues to maximize asset value and execute its cross-selling strategy. Cost and expenses saw improvements driven by operational efficiencies, customer support, and logistics. Administrative expenses decreased year over year, while selling expenses rose primarily due to investments in the sales team. Financial expenses increased due to higher yield curve. The company’s effective tax rate was 14.5% in the quarter, down from 20% in the previous quarter. The company has maintained a positive net cash balance and emphasizes returning excess capital to shareholders when growth opportunities are limited. In the latest update, the company has revised its guidance for 2025, with adjusted gross profit expected to exceed BRL 7.05 billion and adjusted basic EPS above BRL 8.6 per share, showing growth of 14% and 18% respectively. For 2027, the company projects MSMB TPV surpassing BRL 670 billion, with adjusted gross profit expected to exceed BRL 10.2 billion. Despite aggressive share repurchases, adjusted net profit guidance remains at BRL 4.3 billion, with an upgraded EPS guidance. The company remains focused on maximizing long-term intrinsic business value growth per share.
During the Q&A session, questions were raised about the company’s banking solution and capital structure. The company attributes its outperformance in banking to deposit growth ahead of TPV, driven by bundling payments and banking solutions. The company continues to develop more solutions, expecting deposits to grow ahead of TPV in the future. Regarding capital structure, the company has already returned over BRL 2 billion in share buybacks over the past year, demonstrating a commitment to efficiently distributing capital to shareholders. StoneCo executives announced that they are not committing to a specific target for capital allocation through dividends or buybacks, but plan to provide more visibility in the coming quarters. The company has around BRL 900 million available for buybacks under an active program. They have completed a substantial repricing initiative for clients in response to the rising yield curve, with record low churn on repricing waves. StoneCo will reassess market conditions in June to determine if additional repricing actions are needed. The decision to guide basic EPS instead of diluted was made to avoid volatility in calculations and potential double accounting due to share-based compensation expenses. In a recent call, analysts discussed the company’s basic EPS metric and the impact of a turnaround plan. The CFO mentioned a share buyback program with 5.9 million shares outstanding and full benefits of repricing expected in the second quarter. Prices are similar to industry peers due to interest rate increases. The EPS guidance reflects net income growth of 9% and share buybacks could provide additional upside. Regarding the sale of software assets, the CEO emphasized a disciplined approach, focusing on maximizing stand-alone value and cross-selling financial services to clients. The possibility of selling the asset is still open, but the focus remains on maximizing value. Pedro Zinner, CEO of Linx, did not comment on the intrinsic value of the company but mentioned that post-impairment, the equity for the Software segment is around BRL 4 billion. Linx is rolling out a funding strategy that will shift financial lines, resulting in an accretive impact on EPS. The company believes it already has enough capital to fund growth through 2027. There is excess capital, and discussions are focused on the most efficient way to return it to shareholders. Linx’s CEO mentioned that the company is considering the size of its sales force to achieve better economies of scale in the future. In a recent call, company executives discussed their focus on improving sales force productivity and operational efficiency through technology-driven platforms. They anticipate a flat trend in sales expenses relative to revenues in 2025, with a long-term goal of greater efficiency and dilution through advanced technology applications. Analysts inquired about deposit stabilization as a percentage of total payment volume (TPV) and the company’s risk appetite amidst a challenging credit environment in Brazil. Executives confirmed proactive adjustments in credit models and pricing to reflect market conditions and expressed optimism for portfolio growth in 2025. StoneCo is monitoring the amortization and health of its portfolio while still in early stages of product penetration. The company plans to cautiously grow its portfolio while exploring opportunities in payroll loans. StoneCo reported a tangible ROE of 30-35% and excess capital generation of 60-70%. The company is considering canceling most treasury shares and using some for share-based compensation. StoneCo’s regulatory capital is the most restrictive constraint currently, with credit ratings also playing a role in future capital considerations. StoneCo, a financial technology company, reported strong results for 2024 with a software revenue growth of 15%. The growth was partly due to a nonrecurring effect of BRL 8 million and a specific company’s performance within the software portfolio. The company is not providing specific figures for software segment growth but expects organic growth to continue in line with recent trends. StoneCo is focused on optimizing margins and preparing for long-term efficiency gains through the use of predictive models and AI technology in operations. CEO Pedro Zinner emphasized the importance of disrupting the business model to stay ahead in the industry.
Read more at Nasdaq: StoneCo (STNE) Q4 2024 Earnings Call Transcript