StoneCo (STNE) Q3 2026 earnings review
StoneCo expands its merchant loan book, but gross profit falls
StoneCo, the Brazilian merchant payment and banking provider, grew its loan book and client deposits while its core profit fell. Total revenue rose 3%, but gross profit excluding one-offs dropped 8% as loan loss provisions more than doubled and software and risk expenses climbed. Heavy share buybacks over the past year cushioned per-share profit excluding one-offs, which slipped 3%.
| Total revenue and income | R$3,686.1M +3.3% from a year ago |
|---|---|
| Gross profit, excluding one-offs | R$1,475.9M -8.0% from a year ago |
| Profit per share, excluding one-offs | R$2.33 -2.5% from a year ago |
| Loans overdue more than 90 days | 9.92% 8.60% last quarter |
⚖️ Verdict: 🔴 Bearish
The story got worse because the second-half gross profit recovery required to meet the company's full-year plan turned into a steeper decline. By our math, hitting the bottom of the 2026 gross profit target now requires 25% growth in the fourth quarter, while loans overdue more than 90 days reached nearly 10%. One bright spot: simpler pricing bundles helped payment volume growth edge up to 5% and lifted customer deposits 26%.
The question now is whether fast lending growth is building a lasting second profit stream or adding credit losses that eat up the extra revenue. If newer government-backed loans hold down defaults, credit profit will finally lift total gross profit; if late-stage delinquencies keep rising as reserve coverage falls, provisions will absorb the gains. Fourth-quarter gross profit and overdue loan rates will settle it.
🐂 Bull Case
Customer Deposits Grew Five Times Faster Than Payment Volume
StoneCo is trying to "reposition ourselves as the bank for Brazilian entrepreneurs" rather than just a card-machine provider. In the third quarter, customer deposits rose 26.3% from a year ago to R$11.4 billion, while total payment volume grew 5.1%. The active client base expanded 5.4% from both last quarter and last year to 5.1 million merchants, helped by customers who use only banking services.
This matters because the Brazilian financial technology group uses these time deposits to fund merchant cash advances instead of borrowing at higher market rates. That shift helped reduce net financial expenses from 32.1% of revenue a year ago to 31.4% this quarter. Bringing in banking-only users did lower monthly average revenue per active client by 2.4% to R$248.3, as banking accounts earn less upfront than card terminals.
What to watch: monthly average revenue per active client over the next two quarters. If StoneCo converts these new banking-only customers into payment and loan users, revenue per client will stop falling.
Lower Prices Helped Payment Volume Grow Faster
Customer departures among small businesses have weighed on payment volumes for the past year. To keep merchants from leaving, StoneCo simplified its pricing bundles, especially in TON, its brand for micro-merchants and self-employed workers. Total payment volume (TPV), the value of all card and instant payments processed, reached R$147.4 billion, and its yearly growth rate rose for a second straight quarter: from 2.7% in the first quarter to 4.3% in the second and 5.1% in the third.
StoneCo attributed this pick-up to the "early results of our initiatives to reduce churn", while noting that the main Stone brand for larger shops is recovering more slowly than TON. The catch is that simpler, lower-priced bundles reduce immediate fee revenue before any longer retention pays off.
What to watch: fourth-quarter payment volume growth alongside gross profit. Volume growth that continues only while gross profit shrinks would show that StoneCo is giving away more in price than it gains in loyalty.
Share Buybacks Cushioned Per-Share Profit
StoneCo spent R$212.0 million buying back its own shares in the third quarter and R$2.8 billion over the past twelve months. Those purchases cut the basic weighted average share count by 13.9% from a year ago, down by 36.9 million shares to 227.9 million. Alongside the R$3.08 billion special dividend paid in May from the sale of its Linx software business, a smaller equity base also lifted return on equity by 1.8 percentage points to 23.5%.
Because the share count shrank so much, basic profit per share excluding one-offs fell only 2.5% from a year ago to R$2.33, even though net profit excluding one-offs dropped 15.5% to R$542.1 million. By our math, the fourth quarter now needs at least R$3.88 per share, or 20.5% growth from a year ago, to reach the bottom of the company's R$10.80 full-year target.
What to watch: fourth-quarter share buyback spending against the R$421.1 million of net cash excluding one-offs left on the balance sheet. A smaller cash buffer limits how much longer buybacks can shield per-share profit from falling earnings.
🐻 Bear Case
Loan Losses and Operating Costs Reduced Gross Profit
StoneCo's core profitability measure is gross profit excluding one-offs, which deducts service costs, loan loss provisions and funding expenses from revenue. Rather than speeding up in the second half to meet the full-year target of R$6.6 billion to R$7.0 billion, gross profit excluding one-offs fell 8.0% from a year ago and 5.6% from last quarter to R$1,475.9 million.
- Gross profit margin excluding one-offs: 40.0%, down 5.0 percentage points from a year ago and 3.6 points from last quarter
- Provision expenses for expected credit losses: 5.4% of revenue, up 3.0 percentage points from a year ago
- Cost of services excluding loan provisions: 23.2% of revenue, up 2.7 percentage points from a year ago on risk management and "investments in software, with AI as a key and fast-growing component"
- Employee stock-award expense: fell from R$59.2 million last quarter to R$1.4 million after the group "updated our estimate of awards expected to be forfeited by departing employees"
Even with that employee forfeiture windfall cutting other operating expenses nearly in half from last quarter, pre-tax profit excluding one-offs still dropped 16.1% from a year ago to R$635.3 million. By our math, hitting the R$6.6 billion bottom of the full-year gross profit target now requires R$2,072.4 million in the fourth quarter, a 24.7% jump from a year ago after nine months in which gross profit fell 2.8%.
What to watch: fourth-quarter gross profit excluding one-offs against the R$2,072.4 million needed for the bottom of the annual target. Any number below that level means the company missed its full-year plan.
Past-Due Loans Kept Rising While Loss Reserves Shrank
StoneCo has relied on lending to merchants to drive top-line growth as card payment fees slow, while bulls view the expanding loan book as a multi-year profit driver. The gross credit portfolio — merchant working-capital loans plus credit cards — grew 78.0% from a year ago and 9.0% from last quarter to R$4,090.1 million, aided by "working capital solutions supported by government programs". Credit revenue more than doubled from a year ago to R$395.7 million.
- Loans overdue more than 90 days (NPL > 90 days): 9.92% of the portfolio, up from 8.60% last quarter and 5.03% a year ago
- Loans overdue 15 to 90 days: 4.49%, down from 6.00% last quarter but up from 3.12% a year ago
- Loan loss provisions: R$197.4 million, up 128.6% from a year ago, absorbing half of credit revenue
- Coverage ratio (accumulated loss reserves divided by loans overdue more than 90 days): 195.6%, down from 203.6% last quarter and 265.0% a year ago
StoneCo described its 195.6% reserve coverage as "remaining at a conservative level given the current macroeconomic environment and the mix of our portfolio". Yet the financial statements show that Stage 3 impaired loans — contracts overdue more than 90 days or unlikely to be paid in full — jumped from R$204.9 million at the end of December to R$579.8 million in September, even after R$147.0 million of write-offs. After subtracting R$197.4 million of provisions, credit added R$198.3 million before funding costs, up only R$37.4 million from last quarter.
What to watch: loans overdue more than 90 days and the coverage ratio in the fourth quarter. If overdue loans rise above 10% while coverage falls again, higher provision expenses will continue to eat up new lending revenue.
Free Instant Payments Keep Cutting Card Fees
Shoppers in Brazil are steadily switching from plastic cards to PIX, the central bank's instant payment network. In the third quarter, PIX QR Code volume on StoneCo's machines rose 45.3% from a year ago to R$33.1 billion, while traditional card payment volume (CTPV) shrank 2.7% to R$114.3 billion. As a result, net revenue from transaction activities and other services fell 32.1% from a year ago to R$425.3 million.
StoneCo noted that part of the 32.1% drop comes from bundled pricing that shifts merchant fees out of transaction revenue and into financial income from cash-advance prepayments. However, financial income grew only 9.9% from a year ago, or R$252.9 million, and most of that R$211.1 million increase came from credit loans rather than card prepayments. That means the shift from cards to PIX and cheaper bundles is reducing payment fees overall.
What to watch: card payment volume growth in the fourth-quarter holiday shopping season. Another decline in card volume would confirm that PIX is permanently replacing higher-fee card transactions.
Risks this quarter didn't answer
Three standing risks from earlier quarters received no complete resolution in the third-quarter report and financial statements.
- Distressed card-issuer exposure: after booking a R$200.3 million loss allowance in the second quarter for card issuers in financial distress, the total allowance on card-issuer receivables stood at R$291.2 million in Note 5.2.1 (up from R$76.9 million in December 2025), while total gross exposure remains undisclosed.
- Customer churn rate: StoneCo credited anti-churn initiatives for faster payment volume growth, but still does not publish monthly merchant departure rates or break out payment clients separately from banking-only users.
- Higher Brazilian corporate tax rates: Note 8.1 shows the combined Brazilian statutory tax rate rose to 37.0% from 34.0% a year ago under Complementary Law 224/2025, though research tax credits and foreign entities kept the effective tax rate excluding one-offs at 14.7% this quarter.
👓 Other Themes
Brazilian Benchmark Interest Rates Eased From Last Year
StoneCo pays interest linked to the Brazilian interbank deposit rate (CDI) on customer time deposits and debt used to fund merchant card prepayments. In the third quarter, the average CDI rate was 13.96%, down from 14.44% in the second quarter and 14.90% a year ago. While that decline helped restrain funding costs, the rate remains well above the 12.5% year-end level management originally assumed when setting its 2026 financial targets.
💲 Other KPIs
Net cash excluding one-offs — cash, short-term investments and card receivables minus deposits, merchant payables and debt — fell by R$928.9 million from last quarter and is down from R$3,519.1 million a year ago. Third-quarter net profit of R$521.6 million was outweighed by R$920.7 million of tax effects, R$264.6 million of capital spending and R$212.0 million of share buybacks.
Operating cash flow swung from a R$1,697.3 million inflow in the second quarter to a R$2,659.1 million outflow in the third. The fintech group tied up R$3,673.1 million in accounts receivable from card issuers and paid down R$2,200.2 million in accounts payable to merchants, alongside R$786.0 million in tax payments and R$704.8 million in interest paid.
The Managerial Tier 1 capital ratio — core equity divided by risk-weighted assets under Brazilian Central Bank rules — rose 0.8 percentage points from 26.3% last quarter as risk-weighted assets edged down 1.1% to R$19,614.2 million. The ratio is down 5.5 percentage points from 32.6% a year ago following the May 2026 payout of the Linx sale proceeds.
❓ Key Questions
Will StoneCo revise its 2026 gross profit target?
The third-quarter earnings release omitted the full-year outlook table. Reaching the R$6.6 billion bottom of the standing gross profit plan now requires R$2,072 million in the fourth quarter, a 25% jump from a year ago after an 8% drop in the third quarter.
Why did employee stock-award forfeitures jump so sharply?
Share-based compensation expense dropped from R$59.2 million in the second quarter to R$1.4 million in the third because StoneCo raised its estimate of awards forfeited by departing staff. Investors need to know which teams left and what expense rate returns in the fourth quarter.
What is the remaining exposure to distressed card issuers?
The allowance for credit losses on card-issuer receivables stood at R$291.2 million on September 30, up from R$76.9 million in December 2025. Management still has not disclosed the total gross receivables owed by troubled issuers or whether card networks will cover any shortfall.
How much did government-backed loans lower the coverage ratio?
Loans overdue more than 90 days climbed to 9.92% while the reserve coverage ratio fell nearly 70 percentage points from a year ago to 195.6%. How much of that drop comes from government-guaranteed loans versus unguaranteed defaults rolling into late-stage buckets?