StoneCo (STNE) Q1 2026 earnings review
Massive Dividend Masks Deteriorating Core Fundamentals
StoneCo's Q1 results reveal a company navigating a painful transition. Total Revenue grew 6.5% YoY, marking a steady deceleration from the double-digit growth seen throughout 2025. More alarmingly, the aggressive push into credit is showing cracks: surging Non-Performing Loans (NPLs) triggered a 389% YoY spike in provision expenses, completely wiping out Gross Profit growth (down 0.2% YoY). The company also purged inactive accounts, shrinking its active client base by 4.8% sequentially. However, investors were heavily rewarded on the capital return front: the Linx divestiture generated a massive R$1.24B deferred tax gain under IFRS, facilitating a US$2.53 per share (R$3.08B) extraordinary dividend payout.
🐂 Bull Case
The company distributed R$3.08 billion in a one-time extraordinary dividend following the Linx sale, on top of its ongoing R$2 billion share repurchase program. Capital allocation is highly disciplined.
The credit portfolio surged 122.5% YoY to R$3.2 billion, driving a 186.2% YoY explosion in credit revenues. Stone is successfully monetizing its base beyond simple transaction fees.
🐻 Bear Case
The cost of growth in credit is mounting. NPLs over 90 days jumped to 6.98%, and Cost of Risk hit an alarming 21.9%. Provisions are eating into gross margins, which contracted by 2.8 p.p. YoY.
Total Payment Volume (TPV) growth has nearly flatlined at 2.7% YoY, with Card TPV actually contracting by 3.3%. The macro environment is crushing smaller merchants.
⚖️ Verdict: 🔴
Bearish. While the dividend is an exceptional short-term reward, the underlying operating engine is sputtering. Decelerating TPV, shrinking client counts, and deteriorating credit quality indicate significant fundamental headwinds.
Key Themes
Credit Quality Deterioration
Reversing. Stone's aggressive credit expansion is coming at a steep price. NPLs > 90 days jumped from 5.21% in 25Q4 to 6.98% in 26Q1. Correspondingly, Cost of Risk surged to 21.9%. Management notes early signs of weaker performance in newer vintages and delinquency in larger-than-average clients. This resulted in a 389% YoY spike in provision expenses (R$166.3M), which single-handedly dragged down the entire company's Adjusted Gross Margin.
Core Payments Deceleration & Macro Headwinds
Decelerating. Total TPV grew an anemic 2.7% YoY, down from 5.3% in Q4 and 11% in Q3. More worryingly, Card TPV (CTPV) actively contracted by 3.3% YoY. Management explicitly blamed a 'higher for longer interest rate scenario' weighing on the activity levels of smaller merchants, proving the company's vulnerability to macro cycles.
Active Client Base Contraction Contradicts Ecosystem Narrative
Reversing. The Total Active Client Base fell 4.8% sequentially to 4.7 million. Management stated they 'decided to price previously inactive accounts' to focus on high-engagement segments. While this may clean up the books, it contradicts the prevailing narrative of building an inescapable, ever-growing financial ecosystem, and raises questions about organic gross additions.
Credit Revenue Expansion
Accelerating. Despite the massive risk costs, credit remains the primary top-line engine. The portfolio reached R$3.22 billion (+122.5% YoY), and credit revenues hit R$297.1 million (+186.2% YoY). The average monthly rate charged increased to 3.3%, showing pricing power within the automated desk.
Deposit-Led Funding Efficiency
Stable. Total retail deposits reached R$10.1 billion, up 21.9% YoY. While slightly down sequentially due to Q1 seasonality, the shift toward on-platform Time Deposits (R$9.07 billion) continues to provide a massive low-cost funding base, mitigating the impact of higher CDI rates on Financial Expenses.
Pricing Optimization: Transaction vs Financial Income
Stable. Net Revenue from Transaction Activities plummeted 27.1% YoY, but this is a deliberate accounting and pricing shift. Management continues optimizing bundles by shifting Merchant Discount Rates (MDR) into prepayment revenues (classified as Financial Income). Financial Income grew 12.1% YoY to R$2.58B, validating the strategy.
Software Innovation and Residual Value
Stable. Following the Linx divestiture, Stone is still recognizing value from its residual software operations. Net Revenue from Subscription Services grew 16.7% YoY to R$251.8 million, showing that even stripped of its largest asset, the remaining tech stack provides a steady, recurring revenue layer.
Other KPIs
Reversing. Down 0.2% YoY and 10.5% QoQ. Margin compressed to 41.6% (from 44.4% a year ago). The top-line revenue growth of 6.5% was entirely consumed by the 389% surge in loan loss provisions and increased severance costs from a late-quarter workforce reduction.
Accelerating. Nearly doubled from R$2,588.1M in 4Q25. This massive BRL 2.35 billion sequential increase was driven entirely by the R$3.09 billion cash injection from the Linx divestiture, which offset R$531.8 million spent on share buybacks during the quarter.
Stable. Flattish YoY (+1.1%) and down 18.1% sequentially. Represents a decline as a percentage of revenue from 5.9% in 1Q25 to 5.6% in 1Q26, demonstrating continued operating leverage on the back-office side.
Guidance
Maintained from previous quarter. The company did not issue updated guidance in the 1Q26 release, relying on the targets established at the end of FY25. The midpoint implies roughly 14% YoY growth from FY25's BRL 9.71. Given 1Q26's EPS of BRL 2.19 (up 15.4% YoY), the company is currently tracking slightly ahead of the required run rate, aided significantly by lower share counts from aggressive buybacks.
Maintained from previous quarter. The midpoint implies a 7.6% YoY growth over FY25's BRL 6.32B. However, with 1Q26 Gross Profit actually shrinking slightly YoY (-0.2%) to BRL 1.48B, this target looks increasingly at risk. The company will require significant acceleration in H2 to overcome the current drag from surging credit provisions.
Key Questions
Cost of Risk Ceiling
With Cost of Risk spiking to 21.9% and NPLs over 90 days approaching 7%, where do you see the ceiling for these metrics in the current macro environment, and are you tightening underwriting standards for newer cohorts?
Active Client Purge Impact
You cited 'pricing previously inactive accounts' as the driver for the 4.8% sequential drop in active clients. Is this clean-up complete, or should we expect further contractions in the client base in Q2?
Path to Gross Profit Guidance
Given that Adjusted Gross Profit was slightly negative YoY in Q1, what are the specific levers that will drive the acceleration required in the back half of the year to hit your FY26 guidance of BRL 6.6B - 7.0B?