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Stone's Chairman, Mr. Street, and CEO, Mr. Piau, have been meeting with the market to clear the air after the storm that hit the company last year.
I had the opportunity to talk to a person who attended one of these meetings and took a few notes to share with my readers.
According to management, most of its challenges in 2021 (credit issues and interest rate hikes) were not structural, highlighting that Stone was able to capture market share from its competitors.
The main operational goal for 2022 is to finish developing its one-stop-shop solution for its SMB clients (payment, banking, and software).
Management highlighted that Stone tried to accomplish multiple activities simultaneously, leading to a lack of focus. The goal is to concentrate on the core business and deliver simple solutions.
The message I understood is that my assumption of barely considering the credit operation in the new business modeling is correct.
Management gave more details about the restructuring announced in the 4Q21 earnings. They defined two business segments: financial service and software.
Financial service: focus on MSMR, a combination of Ton, Stone, and Pagar.me (e-commerce) operations.
Software: B&M solutions led by Linx solution.
The company will begin to disclose results by business segment in 1Q22 to provide better visibility on the margins of each business.
Stone believes it could expand its TAM, offering banking and credit to SMBs (sales >BRL200k/month), providing services to improve products and execution.
According to internal estimates, Stone penetrated around 50% of its target SMB niche, indicating a significant upside for the following years.
Management commented that prepayment rates are linked to Selic about recent pressure on funding costs, but repricing isn't automatic.
Although they're facing higher "friction" with clients, Stone has been able to pass through prices because all competitors are repricing.
As commented in the post about Stone’s 4Q21, increasing take rates are correlated to higher churn in the subsequent quarters, so this is no surprise.
Investors can expect some improvement in margins throughout 2022, in line with the guidance provided. Also, there would be an additional upside risk from easing in rates.
Finally, management believes that the company has a strong balance sheet with comfortable liquidity in a more restrictive environment, although an aggressive buyback program sounds off the table.