PagSeguro is a Brazilian payment company, that sells POS devices, provides online banking services and payment solutions to small and medium sized merchants. The company has over 4.4 million merchants in their network, up 43% in Q12019 over the same period in 2018.
The company makes money from 3 sources: Transactions, sales and working capital loans.
Transactions represented 57% of revenue in Q12019 (713 million reais) and grew by 61% YoY. Total transaction volume grew even faster by 70% (to 24.4 billion reais), while the take rate declined slightly to 2.9% due to lower margin transactions making up a larger part of volume. The current exchange rate for USD/BRL is 3.84.
Another part of revenue is sales of POS devices, which amounted to 68 million reais, down 28% from 94 million reais in Q12018. This was mainly due to lower prices (company sells some of their devices for only $1 and makes it up on transactions).
The last part of revenue is Financial income, which represents the discount fees they withhold from credit card
transactions in installments for the early payment of receivables. It amounted to R$430.5 million in Q12019, up 56% YoY. This is basically when someone buys an item on installments from a merchant, the merchant doesn't have to wait until the customers pays over many months, PagSeguro provides them the money instantly or within 14 days and for that they charge a fee.
Other financial income includes interest received on bank deposits and the impact of foreign exchange fluctuations on assets and liabilities.
The company makes money from 3 sources: Transactions, sales and working capital loans.
Transactions represented 57% of revenue in Q12019 (713 million reais) and grew by 61% YoY. Total transaction volume grew even faster by 70% (to 24.4 billion reais), while the take rate declined slightly to 2.9% due to lower margin transactions making up a larger part of volume. The current exchange rate for USD/BRL is 3.84.
Another part of revenue is sales of POS devices, which amounted to 68 million reais, down 28% from 94 million reais in Q12018. This was mainly due to lower prices (company sells some of their devices for only $1 and makes it up on transactions).
The last part of revenue is Financial income, which represents the discount fees they withhold from credit card
transactions in installments for the early payment of receivables. It amounted to R$430.5 million in Q12019, up 56% YoY. This is basically when someone buys an item on installments from a merchant, the merchant doesn't have to wait until the customers pays over many months, PagSeguro provides them the money instantly or within 14 days and for that they charge a fee.
Other financial income includes interest received on bank deposits and the impact of foreign exchange fluctuations on assets and liabilities.
Net income was up 109% in Q12019 to R$310 million, with a net margin of 25%. The stock spots a P/E of 44 and P/S ratio of 10, with a forward P/E of 25.
The company is owned by Universo Online (UOL), one of the largest internet portals in Brazil, which is in turn owned by billionaire Luiz Frias. UOL originally bought PagSeguro as a startup and developed it into a business worth $12 billion today with $1.2 billion in TTM revenues (c. R$ 4,6 billion). The partnership with UOL can be seen as a competitive advantage, as it is one of the most visited sites in Brazil, which gives PagSeguro great exposure to millions of users as well as SEO benefits.
PagSeguro also recently launched PagBank app, which is an online bank app that allows customers to deposit, withdraw and send money for free. The company aims to capture the margin on payments, when users use PagBank to purchase products at merchant registered with PagSeguro. It will create a closed loop ecosystem and the company will not have to share revenues with banks. PagBank has already been downloaded more than 5 million times and has an average rating of 4.8 on Google Play.
Brazil is a nascent market for online payments, with competitors like MercadoPago and Stone co. fighting for market share. In addition legacy banks have announced 0% fees for working capital payments to merchants, which means PagSeguro's Financial income revenue stream is endangered. I am counting on their online bank to more than make up for this loss, as the consumer banking market is huge compared to merchant payment processing. In addition, it appears that Brazilian fintech companies are leaders in the region, and they should be able to expand their solutions to neighbouring countries.
Around 60 million of Brazilians still don't have a bank account and 85% of PagSeguro merchants didn't accept credit cards before using their platform. So there is tremendous potential for growth both within the country and abroad.
I have put 6% of my portfolio into the stock, with a clear stop loss in case things go wrong.
The company is owned by Universo Online (UOL), one of the largest internet portals in Brazil, which is in turn owned by billionaire Luiz Frias. UOL originally bought PagSeguro as a startup and developed it into a business worth $12 billion today with $1.2 billion in TTM revenues (c. R$ 4,6 billion). The partnership with UOL can be seen as a competitive advantage, as it is one of the most visited sites in Brazil, which gives PagSeguro great exposure to millions of users as well as SEO benefits.
PagSeguro also recently launched PagBank app, which is an online bank app that allows customers to deposit, withdraw and send money for free. The company aims to capture the margin on payments, when users use PagBank to purchase products at merchant registered with PagSeguro. It will create a closed loop ecosystem and the company will not have to share revenues with banks. PagBank has already been downloaded more than 5 million times and has an average rating of 4.8 on Google Play.
Brazil is a nascent market for online payments, with competitors like MercadoPago and Stone co. fighting for market share. In addition legacy banks have announced 0% fees for working capital payments to merchants, which means PagSeguro's Financial income revenue stream is endangered. I am counting on their online bank to more than make up for this loss, as the consumer banking market is huge compared to merchant payment processing. In addition, it appears that Brazilian fintech companies are leaders in the region, and they should be able to expand their solutions to neighbouring countries.
Around 60 million of Brazilians still don't have a bank account and 85% of PagSeguro merchants didn't accept credit cards before using their platform. So there is tremendous potential for growth both within the country and abroad.
I have put 6% of my portfolio into the stock, with a clear stop loss in case things go wrong.
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