Is StoneCo a Smart Way to Invest in Fintech?


Dec 22, 2020 6:37AM EST

Fintech company StoneCo (NASDAQ: STNE) has grown rapidly in the Brazilian payment processing industry, and the stock has performed quite well for investors. But with some big-name and deep-pocketed competitors like MercadoLibre (NASDAQ: MELI) and PagSeguro Digital (NYSE: PAGS), is StoneCo still a great way to invest in the war on cash?

In this Fool Live video clip, contributor Matt Frankel, CFP, and Industry Focus: Financials host Jason Moser discuss the competitive landscape in Brazilian payment processing and why StoneCo could still have more room to grow.

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Jason Moser: Ed wants to know what do you think of Stone, a fintech company. We talked about Stone on the show before a number of times, Ed. Matt, I think you and I both like it. I think it’s just a matter of trying to get a better idea of how big the market opportunity is because it’s primarily, for all intents and purposes right now, this is a play on Brazil.

Matthew Frankel: Yeah. They make their money in Brazil. Period.

Moser: The burden on you or the burden on Stone, is tell me why I should own Stone and not MercadoLibre.

Frankel: Right. That’s what I was just about to say. It’s a big market. Brazil has over 200 million people. They have one of the biggest middle classes outside of the US in this hemisphere. I think about 70 percent of their population is middle-class, which is great for the war on cash purposes, meaning, cashless transactions. But this is becoming a crowded space, especially in Brazil. You’ve got PagSeguro is another one, you got Mercado Libre, and MercadoPago has a presence in Brazil. MercadoPago, especially a big competitor to worry about because they have what I call the PayPal (NASDAQ: PYPL) effect. Is that they have their own e-commerce platform to generate payment volume for them to fuel growth, and then they can pursue all platform volume, which they’re doing. There’s a lot of competition, I believe there’s enough opportunity for all of them to be successful. StoneCo is profitable, which is nice, unlike a lot of the big fintechs we talked about. I like StoneCo. I think Warren Buffett’s made his money on them, he’s made quite a bit. Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) owns almost five percent of the company, a stake worth over a billion dollars as I’m talking. They’ve proven their ability to raise capital. Investors are very interested. They completed a follow-on offering not that long ago that raised them a lot of money to help further fuel growth. They’re making a big acquisition. I think the company is called Links in the not-too-distant future that will enhance their ecosystem of products and services that are available to their merchants, which is their big competitive advantage, by the way. Like I said, there are a few big players that offer payment processing in Brazil. StoneCo’s differentiator is they do a lot more for merchants. They have a lending platform, like Square (NYSE: SQ) Capital. They have a lot of other merchant-specific software that they can offer that helps people run their businesses more efficiently and things like that. It’s all the other things that they can offer that are the big differentiator with StoneCo. I think there’s still a lot more room to go. Their market share of Brazilian cashless payments is currently in the 5-6 percent range. I think they could easily increase that. I think there’s still room to go. I don’t own the stock, but I don’t think you’d go wrong with it.

Jason Moser owns shares of PayPal Holdings and Square. Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares), MercadoLibre, and Square and has the following options: short September 2022 $155 calls on Square. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), MercadoLibre, PagSeguro Digital, PayPal Holdings, and Square. The Motley Fool owns shares of Stoneco LTD and recommends the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story STNE MELI PYPL SQ PAGS The Motley Fool

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Donovan Larsen

Donovan is a columnist and associate editor at the Dark News. He has written on everything from the politics to diversity issues in the workplace.

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