Sirwin
Sirwin

Nu Technologies, OK or Continue?


Today I will tell you about Nu Holdings. Nu Holdings is a Brazilian bank, operating throughout the Latin American region. One of my very favorite stocks. Normally, I don't like financial technology companies very much, but Nu is a unique company and is very popular and successful in Latin America. Currently strong in Brazil, it is now growing in neighboring markets as well. Now let me give some more details about Nu, which is also Warren Buffett's choice. Nu Holdings, a digital bank operating in Brazil, Mexico and Colombia, is also included in Warren Buffett's Berkshire Hathaway portfolio. It makes up a small part of the portfolio, only 0.3%. But even though its percentage is small, it attracts attention because it is one of the rare real growth stocks in Warren Buffett's portfolio. Nu is a stand-alone digital bank.

The bank has shown incredible growth and increasing profitability over the last few years. This was reflected in stock prices. Nu's revenues are rising and millions of new members are being added to its platform. Nu ended 2023 with 93.9 million account holders. This means an increase of more than 19 million compared to last year, and its turnover reached 8 billion dollars, again with an increase of 62%. The digital bank's fourth quarter gross profit increased 4 times compared to last year, reaching a gross margin of 48% and a gross profit of $1.1 billion. When we look at it clearly, its net profit in 2022 is 58 million dollars, while this year's net profit is 3.60 million dollars, with a net profit margin of 23%. The Brazilian economy fluctuates sharply from time to time. Despite these fluctuations, credit performance is also quite good. The loan portfolio, which includes personal loans and credit cards, grew by 49% compared to the previous year and reached 18.2 billion dollars. The total interest income portfolio, which includes items such as installment loans and revolving loans, also increased by 91%. As a result, there is an 85% increase in net interest income. Deposits also increased by 38% compared to last year and reached 23.7 billion dollars. So I don't want to overwhelm you with numbers.

Nu is a very fast growing bank. It is difficult to find a financial institution that grows this fast. It is also worth mentioning that it is growing even faster than SOFI. So can Nu keep this up? A company with multiple growth drivers that each carry tons of potential and together create a strong growth company. Nu offers a range of financial services in its fully digital app and easily attracts new customers with its easy-to-use interface and low fees. It finds itself on the path to achieving higher sales per active user. Because the interfaces on the digital platform are very suitable for cross-selling. Average revenue per active user is increasing year over year. While this was $8.20 last year, it reached $10.6 this year.

It may be said that growth is over in Brazil. Because more than half of the adult population currently uses the Nu platform. But it still continues to grow and an average of 1.3 million people per month become new Nu customers in its country. This is a number that surprises me too. By the way, Brazil is a large country with a very large population. Nu, on the other hand, is quite small in Mexico and Colombia. In the fourth quarter, they gained 1 million new customers in Mexico, bringing their total to 5.2 million customers. I think they still have a long way to go there. It also recently increased its deposit rate in Mexico to attract more customers. They gave some promotions to their customers and quadrupled their deposits in Mexico to 1 billion dollars within 2 months. Of course, Colombia is a smaller country. Nu has just gotten in there too. It received its financial license in December and has already reached 800000 customers.

So Latinos love Nu and there are many countries in Latin America where Nu can go. If you notice, we haven't even mentioned Argentina yet. Until now, Nu has been a bank for large low-income segments. It is trying to move a little higher as a customer segment. They have issued a credit card called Ultraviolet. Its transaction volume reached 1.1 billion dollars. The number of customers has doubled in the last year. Growth in transaction volume compared to last year is 104%. Access to these new revenue segments will also create new monetization opportunities for Nu. Of course, the question here now is, is Nu expensive or cheap? Frankly, it's a difficult question.

Because Nu has increased by 150% in the last year. It has increased by 40% since the beginning of this year. It is one of the best performing companies in my portfolio. Currently the annual price earnings ratio is around 19, not too expensive yet. It's expensive for banking, but I think it's not expensive for a fast-growing company. Therefore, it can be given some space in the portfolio. After all, it is one of the rare growth stocks that Warren Buffett believes in. However, it should not be forgotten that financial institutions can be greatly affected by financial developments in the world. In particular, the fact that the majority of this bank's customers are in low-income segments may cause problems in the bank's loan collections during the financial crisis.

New fusions can occur in Latin American countries at any time. Maybe you are following. Currently, the Brazilian government and Elon Musk are fighting. Because the Brazilian government is trying to impose some censorship on Twitter. Elon Musk also opposes this. Twitter stopped its operations in Brazil. However, Twitter can be accessed through alternative means. It is useful to keep these in mind, too. But it is a stock that I am happy to have in the portfolio. The amount is not very large, but if I find the opportunity, I am considering adding it again if there is a decrease.

The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.

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