Contemplating whether to mimic Cathie Wood's strategy and invest in Nu Holdings' stock decline?
Nu Holdings (NU -4.31%) investors saw a downward trend at the end of the recent trading week. The Brazilian fintech stock witnessed a significant 19% drop on Friday following its less-than-impressive financial report.
However, notable growth investing icon Cathie Wood, the co-founder and CEO of Ark Invest, saw this as an opportunity to buy in. Nu was the only stock added to her ARK Fintech Innovation ETF (ARKF 0.83%) on that day, and it was one of only two stocks Ark invested in across all its ETFs for the day. The firm even increased its existing positions in both cases.
NU
But should you follow in Wood's footsteps and invest in Nu Holdings' parent company, Nubank, after this recent downturn? Let's dive deeper to understand the implications of Ark's purchase, the factors that led to Nu's disappointing report, and if these results signify a concern or an opportunity.
disappointing financial update.
Ark's Unique Buy
ARKF
Ark's decision to invest in Nu Holdings is noteworthy, considering its last purchase was in March 2022, more than 11 months back. What's more intriguing is that Wood has intermittently sold minor portions of her position since that small buy in March of last year. Is this an indication that Wood has a renewed faith in Nu, or is Ark merely responding to the market swings as an opportunity to buy?
fintech stocks bought Nu was last March 14, more than 11 months ago. Making things even more interesting, she has sporadically sold small chunks of her position since her mid-March nibble. Is Wood now becoming a bigger believer in Nu, or is Ark just responding to Friday's sell-off as a buying opportunity?
Interestingly, despite the 19% decline, Nu remains in positive territory, up by 4% so far this year. It's already witnessed a double in 2023 and posted a 24% increase last year. With Ark finally making a buy after a significant drop in Nu's stock price, the long-term trend for Nu has consistently pointed upward.
Nu's Troubles
38% rise.
Nu's fourth-quarter results fell short of expectations, making for an imperfect earnings season for a company that had recently spoiled investors with "beat and raise" performances before showing signs of vulnerability last week.
PYPL
On the surface, revenue increased 50% on a currency-neutral basis, fueled in part by a 22% customer growth spurt. But when assessed in terms of U.S. dollars, revenue growth increased by just 24%, which fell short of the analysts' projected 32% rise and marked a deceleration from the prior quarter's 38% increase.
XYZ
Adjusted net income, however, surged 54% in U.S. dollars, marginally exceeding expectations. Some metrics, however, project a more concerning picture. Average revenue per customer ($10.70) declined for the third consecutive quarter, although the figure remains high enough to cover operating costs of just $0.80. Net interest income has also experienced two consecutive quarters of decline and is lower than a year ago. And finally, Nubank's monthly activity rate has dropped for the first time in four years.
When viewing Nu holistically, however, its performance seems more promising. It managed to outdo its fintech peers – PayPal Holdings and Block – in terms of revenue growth in the same quarter despite trading at similar price-to-earnings ratios. Furthermore, 58% of Brazil's adult population now boasts a Nubank account, and its growth is accelerating in Mexico and Colombia, two smaller but rapidly expanding markets.]
[Footnotes:1. This statement is an opinion and subject to interpretation. While it is true that Nu Holdings outperformed its peers in terms of revenue growth, other factors such as market conditions, company strategy, and competitive landscape should also be taken into account when making investment decisions.]
Considering the broader perspective, Nu's stock may appear to have suffered a setback, but its long-term growth potential remains compelling in a region with significant growth potential. The risks inherent in Nu's operations may be manageable given its dominant market position and promising growth trajectory.
- Cathie Wood's Ark Invest saw Nu Holdings' significant drop as an opportunity to invest more, purchasing the stock and increasing existing positions in its fintech ETFs.
- Despite the 19% decline, Nu Holdings remains in positive territory for the year, posting a 4% increase so far and a 24% increase in 2022.
- Ark's decision to invest in Nu Holdings, after a significant drop in its stock price, could suggest a long-term upward trend for the company.
- Nu's troubles include falling short of revenue growth expectations in its fourth quarter, a decrease in average revenue per customer for the third consecutive quarter, and a decline in net interest income and monthly activity rate.