StoneCo Ltd.’s STNE recent announcement for a strategic divestiture of a significant part of its software segment, representing 79% of its software segment revenues in 2024, signals a sharpened focus on its core financial services and micro, small and medium business (MSMB).\n\nIt involves the proposed sale of Linx and related software assets to TOTVS for R$3.41 billion, for which it has entered into an agreement, as well as the already sold SimplesVet, a veterinary-focused software solution, to PetLove for R$140 million. \n\nThe move is expected to enhance operating efficiency and profit margins as StoneCo doubles down on becoming Brazil’s go-to platform for MSMBs. In the first quarter of 2025, StoneCo’s MSMB total payment volume (TPV) rose 17% year over year to R$119.5 billion amid effective repricing efforts and expanding product adoption. Its client base also expanded by 17% to 4.3 million active MSMBs. \n\nKey to this momentum is the company’s bundling strategy, where clients using three or more products increased to 38%, up sharply from 26% a year ago. This indicates success in cross-selling integrated payments, credit and banking services. The company’s banking arm is also growing rapidly, with total retail deposits surging 38% to R$8.3 billion. StoneCo’s credit portfolio hit R$1.4 billion, underpinned by prudent risk management.\n\nThe PIX instant payment system has emerged as a major monetization lever, with transaction volumes up 95% year over year. As PIX displaces traditional debit usage, it is increasing client deposits and engagement. Meanwhile, StoneCo projects MSMB TPV to exceed R$670 billion by 2027 — a 14% CAGR from the 2024 levels.\n\nHow Are PagSeguro and MercadoLibre Performing?\n\nAmong competitors, PagSeguro Digital Ltd. PAGS is intensifying its emphasis on the MSMB segment, which made up 74% of its TPV in the first quarter of 2025. MSMB TPV grew 11.2% year over year to R$95.2 billion, fueled by stronger point-of-sale (POS) usage. The company saw growth in its active SMB client base and performance, benefiting from its strategic pivot away from lower-value nano-merchants to more lucrative MSMBs.\n\nMercadoLibre, Inc. MELI also continues its robust fintech push through Mercado Pago, with TPV rising 43% year over year to $58.3 billion in the first quarter of 2025. MercadoLibre’s monthly fintech users are up 30%+ year over year to 64 million. Its deep regional presence, especially in Argentina and Brazil, and investments in UX, logistics and credit continue to expand its flywheel advantage across Latin America.\n\nSTNE’s Price Performance, Valuation and Estimates\n\nShares of StoneCo have surged 76.5% year to date, outperforming both the broader industry and the S&P 500 Index.\n\nFrom a valuation standpoint, StoneCo shares are cheap, as suggested by the Value Score of B. In terms of forward 12-month P/E, STNE is currently trading at 8.66X, which is below the industry average of 40.07X.\n\nStoneCo’s estimate revisions reflect a positive trend. The Zacks Consensus Estimate for 2025 and 2026 EPS has been revised upward over the past month. The Zacks Consensus Estimate for 2025 EPS suggests 10.4% growth year over year, while the same for 2026 calls for a 16.1% increase year over year.\n\nCurrently, StoneCo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.\n\nThis article originally published on Zacks Investment Research (zacks.com).

Can StoneCo's Software Divestment Unlock MSMB-Focused Growth?

StoneCo Ltd. announced a strategic divestiture of its software segment, selling Linx and related assets to TOTVS for R$3.41 billion and SimplesVet to PetLove for R$140 million. The move aims to focus on micro, small, and medium business (MSMB) growth, with MSMB total payment volume (TPV) rising 17% YoY to R$119.5 billion in Q1 2025. Competitors like PagSeguro and MercadoLibre also show MSMB growth, while StoneCo’s stock surged 76.5% YTD with a low forward P/E of 8.66X. The company projects MSMB TPV to exceed R$670 billion by 2027.