Sept Idea Comp - Nu Holdings Ltd. ($NU)
  1. SUMMARY

  • Nu Holdings Ltd ($NU) is one of the WORLD’S largest digital banking platforms with 65.3M customers and they are just getting started.

  • Massive untapped LatAm TAM outside of main Brazil operations.

  • NU has increased active customers (75% YoY) and their average revenue per customer (105% YoY), which is translating into sky-high revenue growth of 230% YoY to $1.2B

  • Opportunities outweigh the risks = asymmetric risk-reward.

  1. INVESTMENT THESIS

Overview
  • Founded May 2013 and IPO’d in Dec 2021 (at $9/share), NU is a founder-led digital banking platform with >65M customers across Brazil, Mexico, and Colombia. NU creates new financial solutions for individuals and SMEs that are simple, intuitive, convenient, and low-cost. NU’s mission is “fostering access to financial services across Latin America”.

  • NU is capitalizing on the underbanked population of LatAm (see below example) while maintaining high Net-Promoter-Score of 90+. They have provided >5M people with their FIRST bank account or credit card.

Competitive Advantage
  • NU is well positioned to capitalize on secular tailwinds and demographic trends of digitization among the younger generation in emerging markets.

  • The network effect of being the #1 card issuer in all 3 countries gives them additional cross-selling opportunities. Mexico & Colombia are in their infancy and have higher growth rates than Brazil did.

  • NU is increasingly moving from single-product to multi-product and capturing not only individuals, but SMEs too (2M already!). This enhances their ecosystem offering and “builds a fence” around their customers for long-term retention.

Financial Metrics & Growth
  • Formula for Success: Management's core focus/formula is a significant strength because they are very entrenched in enhancing the below 3 metrics. It’s evident that they have capitalized on this thus far, but they are still early in their growth trajectory.

  • Compounding Effect = Higher ARPAC: NU’s ability to cross-sell has been steadily improving and much quicker than previous quarters. The average products per client is now 3.7. This effect is an obvious trust builder between customers and NU since more customers (55%) are now using NU as their primary bank account. I expect this to continue as new products get released/enhanced, which ultimately makes customer’s financial lives easier (and cheaper!).

  • Revenue Growth: Extremely impressive especially given the global macro headwinds and the additional LatAm/Brazil exogenous factors. Revenue grew 230% YoY to $1.2B in Q2’22 - yes, that is NOT a typo. In addition, the ARPAC increased 105% YoY to $7.80/month. $7.80 may not seem significant, but with a $0.80/month “cost to serve” you get an efficient business model. Although I don’t expect NU to continue growing at 230%, I wouldn’t be surprised by triple-digit growth in the short-term.

  • Profitability: Brazil region had net income of $13M in H1'22 for the first time ever. NU has overall profitability in its sights, but will balance it with growth/expansion by being the lowest cost operating platform in the industry as noted by the CEO:

Valuation
  • While valuing hyper-growth companies is proven difficult due to not being optimized for income yet, we can still look to the Price/Sales ratio for some insights.
  • The NTM P/S is currently 4.52, whereas average since IPO has been 11.49.

  • While traditional valuation metrics don’t provide much substance, it's often far more constructive to evaluate hyper-growth businesses based on their business progress/metrics/KPIs like we have done above for NU. Therefore, I place little weight on valuation ratios.

Risks
Macroeconomic Factors:
  • In addition to the global inflation and recession risks, there are region specific risks to Brazil such as currency devaluation and the Presidential election which could contribute to a downturn in the economy. If this materializes further it could impact customer spending, credit demand, payment volumes, and loss of trust in the financial system.

Competition
  • Recently, there has been large VC dollars flowing into LatAm fintech (2020=$4.1B to 2021=$15.7B, per LAVCA), therefore competition will become more fierce. This is relatively mitigated by NU's first-mover advantage, but needs to be monitored closely.

  1. BOTTOM LINE

  • It’s undeniable that LatAm is a massive fintech opportunity poised to help the un-banked population and provide better/cheaper access to financial products. I believe NU is at the forefront of digitization and destined to capitalize.

  • Following the $9.00 IPO in Dec 2021, I believe the current price of ~$5.20 presents a strong bull case over the next 12mo and more importantly, larger upside over the next 3-5 years.

*Disclosure: I added to $NU at $5.10 today and reiterate strong buy rating.
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Great write up of a great biz. I believe they have the highest net promotor score in LATAM too. And anecdotally, when I was in my fiancés little city in southern Brazil everyone had their purple cards and the local bank was struggling because everyone was using Nu.
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August'22 - Growth Portfolio Update
Sells: None

  • Made some adds with the cash coming in. I am looking to add some $CRWD on weakness here as well as $MELI.

YTD return: -33.9%
  • Quite the rollercoaster of a month with most increase being wiped out in the past week after the Jackson Hole speech..
  • I take these price weaknesses to add to the businesses that are still executing - great for the long-term!

Other comments:
  • $NU is a new buy for me in Aug. Took a starter 1.6% position at $4.71 after diving into research and chatting with a few great investors. Planning to add and bring up to ~5% position eventually.
  • I plan to deploy more cash into market weakness. Slow & steady!

Always happy to collaborate and hear your thoughts! Please comment below or send me a DM.
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Thanks for sharing! I love so many of these companies, great choices. I would love to know your thoughts on NU Holdings. I have been interested in them for a while and started reading more. My fiance is Brazilian, so I helped her open an account with them; super easy.
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Neil's avatar
$35.4m follower assets
New Small Position
A first look at NuBank, the LatAm fintech giant.

With over 60 million customers, they are one of the biggest Neo Banks in the world.

I already have $MELI in my portfolio, but I think NU also deserves a spot (a small one right).

If you want to support me: You can get 50% off your Seeking Alpha subscription.

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New Position: $NU
I have taken a starter position in $NU at $4.71 after being on the watchlist and doing research for awhile now.

Rationale:

  • Q2'22 earnings was very impressive and imo proved to me that they have a strong mgmt team, great sustained growth, and a massive target market in LatAm.

  • They are proving they they can expand past Brazil and gain significant market share quickly. Also, very high NPS's which shows brand strength.

Looking forward to further researching this company, adding to it, and watching them grow. I think $NU will be a great complement to my $MELI position.

Happy to hear your thoughts on $NU!
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Beaver Capital's avatar
$98.6m follower assets
July'22 - Growth Portfolio Update
Sells: None

  • Not much activity other than a couple smaller adds on price weakness. Was a bit hesitant with earning season. Still looking to deploy some cash and eyeing up $MELI, $NVDA, $NET, $CRWD.

YTD return: -34.9%
  • Constructive month in most markets, but we are right in the heart of Q2 earnings season which will bring volatility. With volatility comes opportunity.
  • Being down is not fun to look at, but when I zoom out & look 5-10 years out, I am enthused!

Other comments:
  • $PYPL has been a position that has creeped up to a #4 position due to recent adds and relative strength. My confidence in the company has grown recently.
  • I have been working on my watchlist mainly $GTLB $NU $DDOG

Always open to feedback and discussing. If you have any good readings I should be aware of, please let me know!
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I’ve also been buying $UPST. If their algorithm continues to perform, I don’t see why lenders would use legacy credit scores
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Jared Watson's avatar
$19.1m follower assets
Anyone invested in or have any DD for $NU?

I'm intrigued by the 60% drop in share price since IPO, exposure to developing markets in Latin America, fintech disruption, and significant Buffett ownership.
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