What’s The Big Deal With Nubank?
Among the latest initial public offerings (IPO) turning heads in the stock market now would be Nu Holdings (NYSE: NU), better known as Nubank. If this is the first you’ve heard of Nubank, I wouldn’t blame you. With the recent downtrend in U.S. fintech stocks, the general sentiment around the sector is less-than-ideal now. So much so that Nubank actually reduced the expected price of its upcoming IPO last month.
Overall, the company is now targeting an IPO price of up to $9 per share, raising a total of $2.86 billion. Sure, Nubank may be entering a market where IPOs have received lackluster responses and fintechs are taking a breather. However, some would argue that investors may not want to discount this emerging fintech titan just yet.
For some context, the company was founded in 2013. It is currently based in Sao Paulo, Brazil. By and large, Nubank identifies itself as a “neobank”, offering consumers digital accounts and international credit cards. The best part? It does all this without any additional fees. Coupled with a broad array of financial solutions packaged into a tightly integrated mobile app, Nubank’s appeal becomes apparent. Namely, as Latin American consumers and merchants rely more on fintech services, Nubank could be a go-to.
A Buffett Connection Possibly Driving Investor Interest For Nubank
Leading market position aside, the company boasts an impressive list of backers, even before going public. In June 2021, legendary investor Warren Buffett’s investment fund, Berkshire Hathaway (NYSE: BRK.A) invested $500 million in the company. Of course, Berkshire Hathaway is not foreign to fintechs in this region. It also has a stake in StoneCo (NASDAQ: STNE), a Brazil-based fintech.
Now, Buffett’s involvement could interest investors in the current market. After all, any investors who are worth their salt would know of the Oracle of Omaha’s reputation. For the most part, Buffett is known to focus on value stocks that hold strong fundamentals, growth potential, and earning power among other perceivable factors. In addition, Nubank’s shareholders also include notable venture capital firms Sequoia Capital and DST Global, and Chinese tech giant Tencent (OTCMKTS: TCEHY). Accordingly, if these investors see value in Nubank, NU stock could turn some heads.
How Nubank Got Here And Its Growth Prospects In The Booming Latin American Market
Now, while most U.S. investors may not be familiar with Nubank, it is important to know the reach they have in their home market. One thing to consider is that the Latin American market is home to over 650 million people. Moreover, it also consists of developing countries with a lot of growth potential, in theory. On top of that, Nubank is in a unique position that many fintech companies in the West are not able to enjoy. Namely, this includes capturing a large, mostly unbanked segment of society, growing it into the largest bank in Brazil. Thus, it is not surprising to see why the likes of Paysafe (NYSE: PSFE) is expanding into Latin America via its ongoing acquisition of SafetyPay, a leading payments platform in the region.
In detail, Nubank initially focused on catering to untapped local consumer markets. Through this approach, the company has and continues to seize opportunities overlooked by traditional lenders in the region. Among the company’s first and most crucial offerings would be its zero-fee credit card. As mentioned earlier, the card can be fully managed via a smartphone app. When Nubank released the service, it was competing against traditional finance firms that were charging fees to consumers using their services. Given the generally less-than-ideal consumer balance sheets in developing countries, Nubank was and still remains a no-brainer among consumers. Evidently, the company notes that 3.8 million of its customers now have access to a bank account or credit card for the first time.
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Customer Count, Profitability, And Recent Earnings Figures
Diving into the numbers, Nubank currently serves over 48.1 million customers across its network of operations. For some perspective, the company grew this figure from 5.2 million back in 2018. Additionally, the company also reports that it currently has about 35.1 million monthly active users. This marks about 73% of its total clientele. If all that wasn’t enough, Nubank also notes that it saw a net gain of 2 million customers across Brazil, Colombia, and Mexico in the recent quarter.
Even with these impressive customer growth figures, Nubank sees plenty of room to grow moving forward. In essence, Nubank estimates that its serviceable addressable market (SAM) added up to $99 billion in 2020. The company believes this will grow at a compound annual growth rate (CAGR) of 5% till 2025. Should this be the case, Nubank could potentially be looking at a SAM of $126 billion by then.
All in all, Nubank seems to be appealing to the needs of its core markets effectively. In return, it continues to see high growth across its operations in terms of customer growth and revenue. Regarding revenue, Nubank posted a total annual revenue of about $737 million in 2020, marking a year-over-year increase of 20%. However, it should not be overlooked that the company is currently not profitable. This would be due to Nubank focusing its resources towards capturing market share in a booming industry.
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Closing Notes On Nubank Stock
In the larger scheme of things, Nubank is a massive fintech player coming onto the scene now. From its offerings boasting top-tier market fit to its rapidly increasing user base, investors have plenty to consider. This would especially be the case as the market for digital banks like Nubank continues to grow amidst the current pandemic. Thanks to the advances of modern tech, the company also provides a fully integrated banking experience directly to customers’ smartphones.
Sure, the company is still operating at a loss. However, with backing from the likes of Warren Buffett, it seems to be operating on a firm foundation. Given its competitive and aggressive growth strategy, investors could be considering banking on the company’s customer-focused offerings. In a financial service market where consumers may be feeling neglected, Nubank pushes the friendly neighborhood fintech partner narrative well.
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