Why Nu Bank ($NU) will dominate emerging markets online banking, worldwide, sooner than you think.
If you're on the lookout for a stock that combines banking, AI, and emerging markets with substantial growth potential, Nu Holdings Ltd. ($NU), the parent company of Nubank, should be on your radar. Nubank has swiftly carved out a formidable position in the Latin American financial landscape, starting in Brazil, but also extending its services to Mexico (where it has passed 10 million customers) and Colombia (where it has around 1 million customers). With over 100 million total customers and an impressive customer acquisition rate, Nubank is leveraging a digital-first strategy to disrupt traditional banking, meaning it has ZERO brick-and-mortar locations (see: low overhead costs and high returns). The company's focus on providing low-fee, user-friendly services has resonated well with the largely underserved market in Latin America, where traditional banking often comes with high costs and complexities.
One of my favorite reasons to have Nu Holdings as an investment is its operational efficiency and scalability. This highly scalable model not only allows for profitability at a lower scale but also enables the company to pass savings onto customers in the form of lower fees or no fees at all; this combined with their nearly $8 Billion in current cash on hand helps Nu Bank to scale and gain customers from less easy-to-use and higher-cost established competitors. The companies CEO David Velez has stated he wants to the the company grow into all emerging markets, and with the recent $150 million
White Falcon Capitol Management recently had this to say in its 4th quarter investor letter: "Nu Holdings Ltd. (NYSE: NU) has recently corrected due to Brazil's macroeconomic struggles. Nu reports its earnings in U.S. dollars but generates revenue in Brazilian reais, Mexican pesos, and Colombian pesos. The sharp depreciation of these emerging market currencies, coupled with ongoing macroeconomic uncertainty, is making investors uncomfortable. Our due diligence suggests that Nu remains unaffected. Importantly, we continue to believe that Nu is a rare business with a combination of a large market opportunity, a strong moat driven by its superior cost structure, and a brilliant management team."
investment into South Africa and the Philippines is backing up those words with actions. The company's growth metrics are also extremely compelling; revenues have been growing at near break-neck speed, with the latest figures showing a 56.6% year-over-year increase in the third quarter of 2024. This growth is not just in customer numbers but also in AVERAGE REVENUE per active customer (ARPAC), which has shown consistent increases, showcasing the firm's ability to monetize its expanding user base effectively.
NuBank has also demonstrated ridiculous profitability, with a profit margin of 32.6% in the most recent financial report. The stock, while not considered cheap by traditional value investing metrics, still trades at a forward earnings multiple in the high teens, which, given its growth rate, could be seen today as extremely low. For comparison Doordash trades in the 700 range, Duolingo trades in the 200 range, Tesla is typically right around 175, and Shopify is around 80. Analysts are generally bullish with only 1 recommending a sell stance (out of 9 analysts we looked into), and several upgrading their price targets for 2025.
Finally, Nu Bank's innovation in product offerings is extremely impressive, like the introduction of cryptocurrency trading and AI-driven financial services, which positions it well for future growth. They have been working AI into their product for years and their investment in this technology is still growing based on the great returns they have seen on their initial investment. The company is not only focusing on banking but is also expanding into broader financial services, which is beginning to diversify revenue streams and reduce dependency on any single product. With the digital banking sector in Latin America still in its growth phase, Nu Bank has a clear runway for expansion, both in terms of geographic reach and the breadth of services. This makes it an attractive option for investors looking for exposure to high-growth fintech in emerging markets.