We came across a bullish thesis on Nu Holdings Ltd. (NU) on Schwar Capital’s Substack by Schwar Capital. In this article we will summarize the bulls’ thesis on NU. NU Technologies, Inc. share was trading at $13.65 as of Sept 30th. NU’s trailing and forward P/E were 43.49 and 23.04 respectively according to Yahoo Finance.

A person holding their smartphone, utilizing the company's digital banking services from anywhere.

Nubank was founded in 2013 by David Vélez, Cristina Junqueira, and Edward Wible. It started as a small company but has grown into one of the world’s largest digital banks, with over 104.5 million customers by mid-2024. This Brazilian fintech uses a mobile-first, cloud-based platform to make banking easier and more accessible. Nubank earns about 80% of its money from interest on credit card balances, personal loans, and deposits. The other 20% comes from fees on card transactions, payments, and marketplace commissions. The company serves many customers across in Brazil, Mexico and Colombia.

Nubank has a big advantage because it was one of the first to offer digital banking in the region and operates at a low cost. It uses advanced technology and focuses on customer satisfaction, which helps it stay ahead of competitors. The company plans to expand further in Latin America, especially among people who don’t have access to traditional banking services. They are investing in technology and new products like AI-driven credit assessments and expanding services like NuInvest and NuPay. They also plan to grow in Mexico and Colombia, where many people still don’t have bank accounts. Strategic mergers and acquisitions, like buying Easynvest and Olivia AI, will help Nubank grow even more.

Nubank’s financial performance has been impressive. In the second quarter of 2024, it reported a net income of $487.3 million, a 117% increase from the same period in 2023. Its adjusted net income was $562.5 million, and total revenue reached $2.8 billion, a 65% year-over-year increase. The company’s customer base grew by 25% over the past year, showing its strong market appeal. The bank has become more efficient, reducing its efficiency ratio to 32.0% from 35.4% the previous year. Nubank has a strong balance sheet with $8.5 billion in cash and a low debt-to-equity ratio of 0.35.

This solid financial foundation makes Nubank an attractive investment opportunity in the fintech sector, capable of disrupting traditional banking practices in Latin America. With over 650 million people in the region, many of whom are underbanked, Nubank is well-positioned to capture a significant market share. This is especially true in Brazil, Mexico, and Colombia, where credit card use is still low. The company has a high customer satisfaction score of 90 and 83% of its customers are active monthly. Nubank’s digital-first model reduces customer service costs by 85% compared to traditional banks, allowing for competitive pricing and efficient customer acquisition. Its NuX credit engine uses machine learning for accurate risk assessments, leading to a growing loan portfolio with low default rates. The strong leadership of founder David Vélez, who has a significant ownership stake, ensures that management’s interests align with long-term shareholder value.