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The Rationale Behind Buying Nu Holdings Shares Prior to February 20th

Investment in the Digital Bank from Latin America continues to appear attractive.

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The Rationale Behind Buying Nu Holdings Shares Prior to February 20th

Bold and Brash: The Nu Holdings Debate

Ever since its public debut three years ago, Nu Holdings (NU, down 4.44%) has been a hotly contested stock. It sailed to $9 at IPO, dipped below $4 in 2022, but then skyrocketed to around $14 as of now.

The bulls are enamored with Nu for a host of reasons. It's growing like a weed, boasts a vast untapped market, and enjoys the backing of the legendary Warren Buffett's Berkshire Hathaway. However, the bears voice concerns over the challenges Nu faces in its core markets and the growing fintech competition across Latin America.

Preparing for its Q4 earnings report on February 20, we highlight seven reasons why it might be a smart move to buy Nu ahead of the report:

1. Dominant First-Mover Advantage

As a native of Brazil, Nu expands its digital-only banking services to Mexico and Colombia. With an unbanked population of 70% according to the World Bank, Latin America presents a fertile market for digital banking. The internet penetration rate, meanwhile, soared from 46% in 2013 to 81% in 2023, making it a prime spot for Nu's unique services.

2. Expanding Customer Base

NU

Nu's customer base expanded from 33.3 million at the end of 2021 to a staggering 109.7 million by Q3 2024. The lion's share of growth stems from Brazil, where Nu serves 100 million customers and gains approximately 1.1 million new customers monthly. Nu's Mexican market also posted an impressive gain of 1.2 million customers in its latest quarter.

3. Rising Customer Engagement

With a growing list of offerings like credit cards, crypto services, and e-commerce tools, Nu's active customer ratio has risen from 76% in 2021 to 84% in its recent quarter. This suggests that the expanding ecosystem is keeping customers hooked, leading to an increase in average monthly revenue per active customer from $4.50 (at the end of 2021) to $11 in Q3 2024.

4. Balanced Spending

High growth often goes hand in hand with hefty customer acquisition costs. Contrary to this trend, Nu maintains a steady monthly average cost to serve each active customer, ranging from $0.80 (2021) to $0.90 (first half of 2024) before dipping back to $0.70 in Q3.

5. Soaring Profitability

By 2023, Nu turned a profit on the generally accepted accounting principles (GAAP) basis. Analysts expected a surge of 92% in 2024 net income as the digital bank continues expanding.

6. Diverse Growth Opportunities

Nu has more than a few expansion opportunities up its sleeve. New markets, AI innovation, customer data utilization, robust chatbots, and cybersecurity tools all spell growth potential for the tech-savvy bank.

7. Value Opportunity

Analysts anticipate a compound annual revenue growth rate of 34% and EPS growth of 54% from 2023 to 2026 for Nu, even in the face of stock volatility. Provided investors can see past the near-term challenges, Nu could be a screaming bargain in the making.

Sources:[1] Nu Holdings' Financials (2024)[2] Berkshire Hathaway (Year-End 2024 Holdings)[3] Q4 2023 Earnings Call Transcript (Nu Holdings)

GAAP) basis in 2023. Analysts expect its net income to surge 92% in 2024 as it continues to scale up its business.

  1. Investors considering Nu Holdings (NU) might find interest in its financials, as it reported a profit on the generally accepted accounting principles (GAAP) basis in 2023 and analysts anticipate a 92% increase in net income in 2024.
  2. Despite Nu Holdings' stock (NU) experiencing volatility, analysts forecast a compound annual revenue growth rate of 34% and EPS growth of 54% from 2023 to 2026, suggesting potential long-term value.
  3. Nu Holdings' (NU) strategy of expanding into new markets like Mexico and Colombia, while also improving its digital offerings, may contribute to its continued growth and increase in profitability.
  4. The company's demonstration of balanced spending, with a steady monthly average cost to serve each active customer for three consecutive years, shows its financial discipline and commitment to long-term sustainability.
  5. As Nu Holdings' (NU) stock (NU) faced a significant drop of around 44% from its initial public offering price, some investors might find this as an opportunity to purchase the shares at a potential discount, following its solid financial performance and anticipated growth in the fintech sector.

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