StoneCo STNE shares have declined 26.1% over the trailing three months, underperforming the Zacks Computer & Technology sector’s return of 6.7% and the Zacks Internet - Software industry’s appreciation of 6.5%.

STNE shares have lagged peers like Fortinet FTNT, Paylocity Holding PCTY and Smartsheet SMAR, which have appreciated 23.1%, 16.9% and 1.1%, respectively, over the same time frame.

StoneCo's underperformance can be attributed to a decline in Total Payment Volume (TPV) within the key accounts segment, led by a loss of volume from a major sub-acquirer in the third quarter of 2024. The rise in the Non-Performing Loans (NPL) rate for Merchant Solutions negatively impacted the share price movement.

The key accounts segment experienced an 11.3% sequential decline in TPV, while the NPL rate for Merchant Solutions increased to 3.7% from 2.6% last quarter, indicating a higher risk of loss unless the outstanding debts are recovered.

Estimate Revision for STNE Trends Downward

The Zacks Consensus Estimate for STNE’s fourth-quarter 2024 revenues is pegged at $585.02 billion, indicating a year-over-year decline of 10.80%.

The consensus mark for fourth-quarter earnings is pegged at 33 cents per share, down 3 cents in the past 30 days. The estimate indicates a year-over-year decline of 8.33%.

The Zacks Consensus Estimate for STNE’s 2024 revenues is pegged at $2.29 billion, suggesting a year-over-year decline of 5.27%.

The consensus mark for 2024 earnings is pegged at $1.17 per share, down 5 cents over the past 30 days. However, the estimate indicates year-over-year growth of 20.62%.

StoneCo has a mixed earnings surprise history. The company’s earnings missed the Zacks Consensus Estimate in one of the trailing four quarters and beat the other three, resulting in an average surprise of 3.42%.

Segment Expansion Drives STNE's Growth Prospects

In the third quarter of 2024, StoneCo saw strong growth in TPV for its Micro, Small and Medium Business (MSMB) clients, with a 20% year-over-year increase to BRL 114 billion. MSMB TPV is projected to keep growing, driven by steady gains in Card TPV and a significant rise in PIX QR code volumes. This shift brings positive economic benefits for StoneCo and its clients, setting the company for continued growth.

The MSMB segment reached a record take rate of 2.58% in the reported quarter, reflecting effective revenue generation driven by strong payment take rates, and increased monetization in banking and credit services. This metric, which shows the percentage of total transaction volume STNE earns as revenues, highlights the company’s ability to extract more value from its customer base.

In the third quarter of 2024, StoneCo reported 4 million active payment clients in the MSMB segment, marking 21% year-over-year growth. This highlights the company's ability to expand its client base and strengthen its presence in the MSMB market.

STNE achieved remarkable growth in its banking services, with its client base expanding 47% year over year to reach 2.8 million customers. This strong growth reflects the company's ability to attract and retain clients in a competitive market.

Total deposits also showed significant improvements to BRL 6.8 billion, while demand deposits rose an impressive 50% to BRL 6.7 billion. These metrics highlight StoneCo's increasing appeal as a trusted banking provider and its solid performance in strengthening its financial foundation.

STNE surpassed its annual guidance for credit, achieving a portfolio of BRL 923 million in the third quarter. This represents an impressive quarter-over-quarter growth of nearly 30%, reflecting strong demand and effective management of its credit offerings.

However, StoneCo faces challenges, including a decline in TPV in the key accounts segment and an increase in NPL, which is expected to hurt its performance.

Financial expenses are expected to rise in the fourth quarter due to higher interest rates.

Zacks Rank

STNE currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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