Nu Holdings: Buy This Buffett-Backed Disruptive Fintech

Summary

Nu Holdings is a Warren Buffett backed Latin American fintech that only recently came public on December 9th, raising $2.6 billion.

The stock price has so far been lackluster, probably because of poor investor sentiment and the fact that the countries in which the company operates are falling into a recession.

The company has doubled its member base each year since 2018 and sits at 48.1 million customers across Brazil, Mexico, and Colombia.

Incumbent banks in Latin America are being disrupted by Nu Holdings because this fintech can service customers at a much lower cost than incumbent banks.

Nu Holdings is a Buy. Investors purchasing the stock today will likely look back five years from now, in hindsight, and consider today’s price a bargain.

Hispanolistic/E+ via Getty Images Why Buy Nu Holdings

The reason that I first became interested in and have already purchased shares in Nu Holdings (NASDAQ: NU ) was when I saw Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A ) becoming a pre-IPO investor alongside several other high-profile investors that included Sequoia, Tencent Holdings, Ribbit, Tiger Global, and Peter Thiel’s Founder Fund. At the time of Berkshire’s investment in the company in June of 2021, Nu Holdings claimed it was the largest single investment they had ever received. The Berkshire investment was and is a huge validation of the Nu Holdings business in many investor’s eyes, so I decided to dig deeper into the company.

What I discovered is that this 2021 CNBC Disruptor 50 company, while not being well known to many US investors, is one of the fastest growing and best fintech companies in the world. Nu Holdings has also barely tapped a very large and attractive market for financial services in Latin America. The company is very disruptive to legacy financial institutions in Latin America and is currently taking market share in countries like Brazil, Mexico and Colombia. Nu Holdings has strong potential to 10X within a 5-year time frame and people that invest today stand to be richly rewarded. What does Nu Holdings do?

Nu Holdings is a holding company for Nubank, which is one of the world’s largest cloud-native digital banking platforms. Nubank currently offers consumers in Brazil, Mexico, and Colombia access to savings accounts and credit cards, as well as life insurance, personal loans, investing products, and mobile payments. Nubank also offers similar digital banking services for small businesses and entrepreneurs. The company began its business journey in 2013, with the intention of disrupting the financial services market in Latin America, which is a market that Nu Holdings currently estimates will reach approximately US $1 trillion in 2021. Source: Nu Holdings F-1

Nubank’s financial services are currently undermining the power of the region’s large incumbent banks. There are several large macroeconomic forces that are pushing both consumers and SME businesses towards Nubank. For one, there is a large segment of the population in Latin America that is unbanked and some of the reason for that is that the big incumbent banks in Latin America cater almost exclusively to the affluent and larger businesses. These incumbent banks tend to make things extraordinarily time consuming, complicated and expensive for the average person or smaller business to set-up a banking account. In the three countries that Nubank currently operates in, Brazil has an estimated that 64 million people that are unbanked, Mexico has 81 million that are unbanked and Colombia has 27.5 million that are unbanked, according to this Global Finance article .

Governments across Latin America are starting to consider the large amount of unbanked in their respective countries an untenable situation. Countries like Brazil are now adopting regulations that encourage fintechs to build out ecosystems to compete with the big incumbent banks and force the old-line banks to improve their services for more of the population. Latin American governments, in general, are taking an extremely favorable view of fintech companies, which is the total opposite of how fintechs are viewed in China . In addition to the tailwinds provided by Latin American governments, fintech adoption by Latin American consumers is being propelled by COVID-19 accelerating the use of e-commerce, which has far fewer cash transactions than sales at physical locations.

Nu Holdings estimates the revenue potential of its serviceable addressable market (“SAM”) for just its Brazilian retail financial services, which includes business lines like revenue from retail credit (defined as interest income net of funding costs and credit charges), investments, payments and insurance brokerage, to be US $99 billion in 2020, which is projected […]

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