Nu Holdings (NYSE: NU) has established a dominant presence in the Brazilian banking market and is making strides in expanding across Latin America.
However, its journey hasn't been without its challenges, and the stock has displayed considerable volatility as Nu navigates the complexities of rapid growth in developing markets. The stock price has surged by 44% so far in 2024, but investors may wonder if that run is likely to continue or if it's time to take profits. Should investors buy, sell, or hold Nu stock right now?
For years, Brazilian consumers faced a highly concentrated financial system as five dominant banks controlled 80% of the country's financial assets. In fact, former Finance Minister Paulo Guedes referred to Brazil's banks as a "cartel" due to the exorbitant fees they charged, with credit card interest rates as high as 160%.
However, regulatory changes in the country paved the way for upstarts like Nu, which had its initial public offering in 2021. The digital-only bank, Nubank, launched in 2013 and has disrupted the traditional banking model by offering free digital accounts and credit cards without annual fees, attracting tens of millions of customers. In the process, it has helped reduce Brazil's unbanked population from 16.3 million to just 4.6 million.
In recent years, Nubank's popularity has increased exponentially with its customer base going from 24 million in 2020 to over 98.8 million currently (that's more than 56% of Brazil's adult population). More than just attracting new people to its offerings, Nubank has done a good job maximizing value from its existing customers. In the third quarter, its average revenue per active customer increased 10% year over year.
Nu's earnings continue to grow and the company has now posted seven consecutive quarters of growing net income. The fintech earned $553 million in profit in the third quarter, up 82% from a year earlier and up 13.5% from the previous quarter.
Nu's growth in Brazil is undeniable, and the company has its sights set on the rest of Latin America. Its current focus is on expanding into Mexico and Colombia, two of the largest markets in Latin America.
In the third quarter, Nu's customer base in Columbia grew by 150% year over year to 2 million, and in Mexico, it grew by 106% to 8.9 million. A recent note from Susquehanna Financial Group pointed out that 51% of Mexico's population remains unbanked, equating to around 66 million people. That offers a huge opportunity to Nu.