📮The Sunday Newsletter archive

A Buffett-Backed Giant Going Public

Fintech giant Nu Holdings ($NU) ignores all the crazy market volatility and plans to go public this week. Nu is a unique fintech company. First of all, it counts Buffett’s Berkshire ($BRK.A$BRK.B) as an investor. Second, in less than a decade it has become the most successful fintech company in Latin America.

It was founded just in 2013 and its first product was a zero-fee credit card managed through an app. Today Nubank offers several services such as saving accounts, payment solutions, personal loans, insurance, and others. It has over 48 million customers, growing at an average rate of 2.1 million new customers per month 👀. And not only that, as it says in its prospectus, it acquires 80-90% of all its customers organically, a sign of its superior services that lead to viral growth.

Nubank is a 100% digital bank, which means that it’s more competitive than traditional banks with branches due to its lower operating costs. Its low fees and its 90+ Net Promoter Score, which indicates a virtually perfect customer experience, help the company grow super fast. In the first 9 months of the year, revenue nearly doubled to $1.06 billion, and at the same time, its bottom improved significantly. Its operating margin fell to -7.7% from -14.8% last year.  

📫Originally posted as part of the Sunday Latte
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It’s very clear why Buffett’s Berkshire has invested $500 million in Nubank. The company disrupts an industry dominated by legacy financial institutions that offer unaffordable services and a low-quality experience. As NU mentions in its prospectus, legacy banks received an average of 1400 complaints 😡 per million customers in the second half of 2020. Over the same period, NU received only 269 complaints per million. 

Also, the Latam banking sector is significantly underpenetrated, mainly due to the high cost of financial services. Even today, 40% of people in Argentina and 55% of people in Mexico don’t have a bank account, and because of their structure, traditional banks cannot dramatically lower their fees. So NU can continue to gain millions of new customers every month thanks to its cheaper and high-quality services.

Last week NU cut its IPO price by about 18% due to the tech selloff. It now expects to raise $2.86 billion, while it was originally planning to raise $3.86 billion. At the new expected midpoint price of $8.5 per share, the company will be valued at $41.5 billion and its P/S ratio will be 32.6, which is an expensive multiple. The company has very strong growth prospects but given the recent market turmoil, shares will be volatile in the near term. $NU starts trading on Thursday.