When billionaire investment guru Warren Buffett acts, other investors pay attention. So when his multinational conglomerate holding company, Berkshire Hathaway, announced plans to make a sizable investment in a Brazilian fintech company called StoneCo Ltd. (STNE) in October 2018, individual and institutional investors alike became curious about this company that was relatively unknown at the time.
When StoneCo was launched in 2012, founders André Street and Eduardo Pontes had already spent over a decade working in the electronic payment and payment processing fields in Brazil. Although they had achieved success before with their online payment technology firm called Braspag, the pair shuttered this earlier operation in order to build StoneCo from scratch. In addition to prioritizing the most advanced technological capabilities in the electronic payment space, StoneCo stressed the importance of human connection, calling themselves a "customer-centered company." The company is based in São Paulo and has approximately 3,500 employees.
- Warren Buffett's company Berkshire Hathaway announced plans to purchase a large share of a Brazilian fintech company called StoneCo Ltd. in October 2018.
- StoneCo's founders André Street and Eduardo Pontes founders had already spent over a decade working in the electronic payment and payment processing field in Brazil before launching StoneCo Ltd. in 2012.
- After StoneCo's 2018 initial public offering (IPO), the company's share price spiked by 30% in the first two days.
Cashless transactions are an expanding industry in Brazil, as in other emerging market economies where the majority of transactions are conducted in cash. StoneCo provides an end-to-end cloud-based technology platform for merchants to conduct electronic commerce, across in-store, online, and mobile channels. The company's cloud-based technology platform helps its clients to connect, get paid, and grow their businesses. The company makes money by charging fees for its services, including transaction payment processing, prepayment financing, subscription, and equipment rentals. The company's target audience is small- and medium-sized businesses. As of the third quarter of 2019, StoneCo had 428,900 customers.
StoneCo Ltd.'s Growth
StoneCo launched an initial public offering IPO in 2018. The company offered 54.9 million shares at a price range of $21 to $23 per share. In their Securities and Exchange Commission (SEC) filing, the firm claimed to have achieved substantial growth, margin expansion, and scale. The company boasted a total revenue and income of 636 million Brazilian real (approximately $160 million) for the first quarter of 2018, as well as a valuation of $6.1 billion, about 22 times the company's revenue for the trailing 12 months. StoneCo also claimed to have captured more than 5.5% of Brazil's market share for the second quarter of 2018, with more than 230,000 clients locked in by the third quarter of 2018. In the third quarter of 2019, the company had achieved 8% of Brazil's market share. It is the fourth-largest electronic payment processor in the country and has a market capitalization of $7.58 billion, as of March 2020.
StoneCo Ltd.'s Investors
With such impressive numbers achieved in such a short period of time, it's no surprise that StoneCo attracted the attention of investors at Berkshire Hathaway. The company purchased more than 14 million shares of StoneCo at the IPO price, making them an 8% owner of the company. Because Berkshire Hathaway is better known for focusing on blue-chip stocks and more predictable, consistent companies, this investment attracted a fair amount of attention in the industry. A new interest in a largely untested fintech company marked a shift in Buffett's typical investment approach. Buffett is also notoriously distrustful of IPOs.
In large part due to Berkshire Hathaway's investment, StoneCo quickly rose to a position of prominence after its IPO, with its share price rising by 30% in the first two days of trading. The company is now one of Brazil's unicorns and is also widely considered to be one of the most innovative payment companies in Brazil.
In addition to Berkshire Hathaway, the Chinese fintech giant Ant Financial, controlled by billionaire Jack Ma, also invested sizably in StoneCo. Other shareholders include Brazilian investment firm 3G Capital Inc.’s founders Jorge Paulo Lemann, Marcel Telles, and Carlos Alberto Sicupira.