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Shares of Nu Holdings (NU) have outpaced the broader markets by a wide margin in 2023. The stock is up 121% year-to-date, valuing the fintech company at a market cap of $36 billion. Despite its outsized gains, Nu Holdings is trading 34% from all-time highs.
Nu Holdings is among the largest digital banking platforms globally, serving 80 million customers in Brazil, Mexico, and Colombia. It aims to leverage proprietary technologies to create financial solutions for individuals and small and medium enterprises. A Brazil-based digital bank, Nu Holdings offers low-cost financial services to customers that range from personal banking to insurance and investments.
Let’s see if long-term shareholders should buy, sell or hold Nu Holdings stock right now.
The bull case for Nu Holdings stock
Nu Holdings has increased sales from $359.5 million in 2019 to $2.97 billion in 2022. In Q1 of 2023, it reported revenue of $1.6 billion, an increase of 87% year over year. Nu Holdings added 4.5 million customers in the quarter and 19.5 million in the last 12 months, an increase of 33%, showcasing the wide reach of the company.
In terms of active customers, Nu Holdings is the fifth largest financial institution in Latin America, allowing it to end the March quarter with deposits of $15.8 billion and a loan book of $12.8 billion.
Nu Holdings has a significant presence in Brazil and has onboarded 75.3 million customers, an increase of 31% year over year. Its customers in Brazil account for 46% of the total adult population in the country. Nu is also the primary banking account for 57% of monthly active customers who have been with the company for at least one year. Moreover, its customer base in Mexico is up 52% at 3.2 million in Mexico, while it has tripled its user base in Colombia to 635,000.
Nu Holdings has significant room to gain traction in Mexico and Colombia, where it accounts for less than 3% of the market.
Nu Holdings focuses on profitability
Over the years, Nu Holdings has successfully upsold new products to its existing customer base allowing the company to increase average revenue per active customer or ARPAC consistently. In Q1 of 2023, its ARPAC was up 30% year over year, indicating strong customer adoption rates.
As the cost per customer remained stable in Q1, Nu reported a net income of $142 million compared to a loss of $42 million in the year-ago period. Its net interest margin also rose by 7.2 percentage points in the last 12 months to 15.7%.
Analysts covering Nu Holdings stock expect the company to report adjusted earnings per share of $0.17 in 2023, up from $0.04 in 2022. Comparatively, its revenue is forecast to rise by 52.9% annually to $7.33 billion in 2023.
Nu continues to expand its portfolio of banking products allowing it to increase customers at an enviable pace. For instance, it recently began offering payroll loans in Brazil and is expected to ramp up services for its SME (small and medium enterprises) segment.
What next for Nu Holdings stock and investors?
Nu Holdings has increased its ARPAC from $3.4 to $8.4 in the last two years. Comparatively, its cost to serve has remained unchanged at $0.8 in this period. As Nu Holdings is growing revenue at a much faster rate compared to expenses, it benefits from a high operating leverage. The company’s efficiency ratio is also trending lower at 37%, which is among the best in the banking ad fintech industry.
Nu Holdings has built a valuable brand in Latin America, which is one of the fastest-growing regions in the world. Due to a large customer base and a low-cost structure, Nu Holdings should drive profit margins higher in the next few years. Moreover, its AI-powered data analytics infrastructure should provide the company with long-term competitive advantages.
Nu Holdings has reported a positive net income in the last three consecutive quarters. Priced at 46.3 times forward earnings, NU stock might seem expensive. But its adjusted earnings are forecast to increase by 50% in 2024 to $0.28 per share.
Out of the eight analysts covering Nu Holdings, four recommend a “strong buy,” and four recommend a “hold”. Wall Street has an average target price of $7.58, which is 5% above its current trading price.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
