Nu Holdings, the parent company of Nubank, has been an incredible growth story that not many people seem to talk about. Honestly, I think this fintech giant from Brazil is doing something special. They've built Latin America's top digital banking platform and are growing like crazy, especially in Brazil, Mexico, and Colombia. What really stands out to me is how they're targeting the huge number of underbanked and unbanked people in these countries. Plus, their financial services segment is crushing it with fantastic results and growth. With rapid user growth, better monetization per user, and a solid valuation, I feel like Nu Holdings is a great buy opportunity right nowespecially with the recent dip in its stock price. Compared to U.S. fintech rivals, I think NU is seriously undervalued, which makes it even more appealing to me.
Nu Holdings has been riding a wave of impressive customer growth over the years. By the end of FY 2024, the fintech hit a record high of 114M customers, reflecting a solid 22% YoY increase. Over the past five years, Nu has grown its customer base at an average annual rate of 42%. While this growth has slowed as the company continues to penetrate its core markets, I believe Nu Holdings is still positioned to become one of the largest fintechs globally. Even if customer growth moderates to around 20% annually, I think Nu could triple its current base and reach ~340M customers by the end of the decade.
Nu Holdings: The Undervalued Fintech Disrupting Latin America
[NU Investor Relations]
In Brazil, NU already banks approximately 58% of the population, with ~61% of those users relying on NU as their primary account. This is a huge achievement, but it also suggests that future growth in Brazil might depend more on GDP per capita increases and pricing power. In Mexico, NU has made impressive progress, banking about 12% of adults after just a few years in the market. While these numbers highlight NU's strong execution, they also point to potential challenges in sustaining topline growth over time.
Revenue Growth Drivers
To offset potential growth headwinds, NU is shifting its focus from pure customer acquisition to increasing engagement and wallet share across new verticals. Here's how I see the company positioning itself for sustained revenue growth:
1. Premium Financial Services: NU's Ultravioleta membership targets high-income users with perks like premium credit limits, travel benefits, and concierge services. With over 700K members already onboarded, this segment is driving higher ARPU through subscription fees and higher interchange revenues. On the credit risk side, Nu has been proactive in managing its portfolio by shifting toward secured lending products like personal loans and SME credit lines, which grew 160% YoY in Q1 2024. Meanwhile, purchase volume for its core credit card business hit $31.1B (+33% YoY) early in 2024.
2. Building a Super App Ecosystem: NU is creating a "Money Platform" that integrates non-financial services to enhance user engagement:
NuMarketplace: With over 1M active shoppers, partnerships with Amazon and Alibaba generate transaction fees while leveraging spending data for targeted ads.
NuCel: A mobile virtual network operator (MVNO) lets users manage cellular plans within the app, capturing recurring telecom spend.
NuTravel: Integrated flight and hotel booking features tap into Brazil's $15B+ online travel market while offering multi-currency account options.
3. Geographic Expansion: Mexico currently contributes just 7% of NU's revenue, but I believe replicating Brazil's strategytargeting underbanked segments and introducing localized productswill drive growth in this market. In Brazil, NU is also working to expand its presence among upper-middle-class customers by offering tailored wealth management tools, addressing a segment where its market share remains below 15%.
Profitability Metrics and ARPAC Growth
On a higher level, NU isn't just growingit's highly profitable. The company generated $2B in net income last year while maintaining an efficiency ratio below 30%, which is rare for fintechs. I think one key driver here is NU's ability to improve customer monetization over time. Once acquired, customers tend to increase their spending on NU's platform as they adopt more products like unsecured loans, credit cards, or savings accounts.
Nu Holdings: The Undervalued Fintech Disrupting Latin America
[NU Investor Relations]
Nu Holdings: The Undervalued Fintech Disrupting Latin America
[NU Investor Relations]
NU tracks this through ARPAC (Average Revenue Per Active Customer), which measures organic monetization growth per user. In Q4'24, ARPAC reached $10.7 per customerup 5% QoQ and 23% YoY on an FX-neutral basis. Top cohorts are now generating $25+ per month, though newer markets like Mexico and Colombia are holding back overall metrics for now. I expect ARPAC improvements combined with growing customer acquisition will drive higher operating leverage moving forward.
Nu Holdings: The Undervalued Fintech Disrupting Latin America
[NU Investor Relations]
In addition, NU's loan-to-deposit ratio sits below 40%, which is conservative compared to Banco do Brasil's ratio of 123%. This gives NU significant room to grow its lending business without needing additional fundingit simply needs to shift liquidity away from treasury bonds, which management has already indicated as part of their plan. This move could expand net interest margins further while allowing NU to scale its lending operations efficiently.
Credit Risk Management
Credit risk has been an area of concern lately due to rising delinquency ratesnow above the industry average at 7%, compared to 5.5%. Higher-than-expected credit losses could impact risk-adjusted NIMs or force NU to preserve capital. However, I think these concerns are manageable given NU's strong loan loss provisions (200%) and high NIMs (18%, with risk-adjusted NIM at 9.5%). While unsecured lending carries greater risk than mortgages or other regulated products, it also offers better interest spreads when underwriting is done correctly.
Nu Holdings: The Undervalued Fintech Disrupting Latin America
[NU Holdings]
Although delinquency rates have risenlikely due to aggressive customer acquisition strategiesI believe the long-term value of these relationships outweighs the short-term costs. NU sees itself as more than just a credit card company; it aims to become a full-service bank offering diverse financial products over time.
A Mispriced Opportunity in Fintech
I believe Nu Holdings is currently one of the most undervalued fintech plays in the market. At a 3-year forward price-to-earnings (P/E) ratio of 8.7x, it's trading at a significant discount compared to U.S.-based fintechs like SoFi Technologies (SOFI) and Upstart (UPST), which are priced at 14.8x and 14.5x forward P/E, respectively. While I don't expect Nu to be valued exactly like its U.S. peers due to its exposure to Latin American economies, I think the current valuation gap is far too wide.
Nu Holdings: The Undervalued Fintech Disrupting Latin America
[Author's workings]
In my opinion, Nu's strong growth and profitability make it deserving of a higher multiple. Even if the P/E expands modestly to 11x, which still reflects a discount to U.S. fintechs, the stock could be valued at around $13.2 per shareimplying upside potential of about 25%. Over the longer term, if Nu continues to execute well and grow its ARPAC figure, I think it could trade at the top of its industry group with a ~15x P/E ratio. That would push its fair value closer to $18 per share, representing a potential 72% upside from current levels.
Backed by Two Investing Giants
What really catches my attention is that both Cathie Wood of ARK Invest and Warren Buffett (Trades, Portfolio) of Berkshire Hathaway are invested in Nu Holdings. It's fascinating to see how this company appeals to two investors with completely different approaches. Wood focuses on high-growth, emerging themes like AI and genomics, while Buffett typically sticks to blue-chip stocks and avoids volatile growth sectors. The fact that these two investing heavyweights see value in Nu makes me think there's something unique about this company. Sure, the stock has been volatile since its IPOthat's pretty common for growth stocksbut having both Wood and Buffett on board gives me confidence in Nu's long-term potential. It feels like a stamp of approval from two very different corners of the investing world.
Final Thoughts
In conclusion, I see Nu Holdings as a compelling buy due to its strong customer growth and strategic positioning in Latin America. This digital finance platform is growing rapidly, and if it keeps up this pace, I expect it to potentially triple its customer base to 340 million by the end of the decade. The fact that Nu is already profitable, nearly doubling its net profit in FY 2024, significantly reduces the investment risk. To me, the biggest selling point is the combination of low valuation and high growth potential. The shares are trading at a very low P/E ratio, especially considering the company's projected growth. With an 8.7x 3-year forward P/E, I believe Nu Holdings is severely undervalued. Overall, I'm optimistic about Nu's potential, and I think it can deliver significant returns for shareholders in the coming years if management continues to execute its growth plans effectively in its core markets.
