StoneCo Ltd. STNE

The business

Stone sells card acceptance, a digital banking account, and working-capital credit to Brazilian micro, small, and medium merchants, earning fees on payment volume, spread on prepaying merchants their own card receivables, float on deposits, and interest on loans. Financial income is the engine: R$2.7B in 2Q26, 74.3% of total revenue and up 10.7% in a year, and it is prepayment and lending spread rather than merchant discount fees. The fee line has gone the other way, down to 11.9% of revenue from 18.8% a year ago as the company reprices card fees into prepayment inside bundled offers. Credit is the fastest-moving piece at 9.7% of revenue, on a portfolio of R$3.8B that has grown 107.5% in a year. The moat, in one sentence, is local hub distribution plus the switching costs of a bundled payments, banking, and credit relationship; whether that survives Pix, PagSeguro, Mercado Pago, and the bank-owned acquirers is a durability question this memo does not settle.

What the statements do not show is that this is a spread business standing on Brazil's policy rate. Stone borrows to prepay merchants, so the Selic is a direct input cost, and management has disclosed that every 100 basis points is worth roughly R$200M to R$250M of pretax earnings. The FY2026 guide was set assuming the Selic ends the year at 12.5%; Brazil's central bank cut to 14.00% on August 5, its fourth consecutive quarter-point move, which management sized on the August call as a headwind north of R$300M for the year. The credit book is the other thing the top line hides. It splits into an automated desk of roughly R$40k tickets at about 4% a month and a dedicated desk under 25% of the merchant portfolio with average tickets near R$700k, where the quarter's damage came from a handful of exposures above R$10M entering bankruptcy protection. Since April the company has steered new lending toward government-guaranteed lines where the state covers about 75% of a default, which lowers the yield, the loss content, and the provision carried upfront.