It’s Too Early to Say If Nu Holding’s IPO Was a Success


Nu Holdings Ltd. (NYSE:NU), a Brazilian fintech company, went public in December 2021 on the New York Stock Exchange, offering digital financial services in Brazil, Mexico and Colombia. Is it time now to buy its shares or should you wait amid the recent geopolitical tensions causing increased volatility in the global financial markets?

A Nubank sign outside of an office building.
Source: Jo Galvao /

When I write for the first time about an IPO, my thesis is to be defensive and watch stock movement. While NU stock has been hot for many reasons, I see no reason to treat it any different than other IPOs.

Timing Is Everything

To me, an IPO is one of two things, a success or failure. NU stock’s IPO price of $9 made a short-term surge to $11.25 when the stock began trading and even went up to a high price of $12.24. The current closing price of $7.65 as of Feb. 28 has left early investors with a loss of nearly 24% compared to the IPO price.

Technically this loss does not make the IPO a success, at least in terms of positive financial performance. But to be fair, we should give some time to NU stock to prove its value. Interestingly, the timing of this IPO was not ideal in my opinion.

Nu Holdings “raised $2.6 billion at an implied valuation of $41.4 billion” and was among the largest IPOs in 2021. In business, timing of decisions is critical. Most probably for this digital banking company, the decision to raise funds via an IPO was a business decision that could not be delayed.

Still, knowing that rising interest rates in the U.S. market are almost a certainty in 2022 and going public at the end of a strong year for all major U.S. stock indexes is not ideal. Putting aside the latest geopolitical risks that we can’t exactly predict the ripples of, NU stock is entering the market at a bad time.

Then again, would it be a better scenario going public during summer, having hypothetically decent gains and then crashing in 2022? We’d probably be discussing heavier losses than just 24% off the IPO price.

Does a Berkshire Hathaway Investment in NU Stock Make It Interesting?

Berkshire Hathaway (NYSE:BRK-A, BRK-B), has invested in Nu Holdings, a fact that makes us believe Warren Buffett sees value in the stock for the long term. The stock price has yet to justify his decision, but other key metrics such as growth seem to argue the iconic investor may have identified another interesting investment opportunity.

I consider blindly following a portfolio of celebrities or well-known investors as too risky and a sign of lack of investment knowledge, as due diligence is always recommended. So, to answer the question, yes it is interesting, but investors should do their own work in valuing the stock. For example, Nu Holdings just released their full-year 2021 results.

NU Stock Q4, 2021 Earnings and Full-year 2021 Results

The first official earnings report since Nu Holdings went public could easily leave investors crying out loud the famous phrase “I’ll be back” from the Terminator movies. Why? Management stated, “Nu is off to a strong start as a public company, as our fourth quarter performance makes clear.”

This is half-true depending on what angle you focus on. If the angle is growth, then yes, management is correct.

The total revenue for Q4, 2021 reached $635.9 million, representing a year-over-year increase of 224.3%. In 2021, the total revenue was $1.7 billion, setting a company record. The Average Revenue per Active Customer (ARPAC) increased to $5.60 in Q4 2021 versus $3.30 in Q4, 2020, an increase of nearly 70%.

Customer growth reached 53.9 million in Brazil, Colombia and Mexico. Other positive news includes the launch of numerous new products, the expectation of robust growth in Mexico and a surge in small and medium-sized enterprises to 1.4 million from 0.5 million reported earlier.

I am skeptical about what management stated: “This was the first year the Company posted positive Adjusted Net Income.” I like the GAAP definition of net income instead. In the absence of information key to valuing NU stock, investors should be patient and wait for the next quarters to evaluate financial performance. The fact that the gross margin was 35.7% in Q4, 2021 compared to 37.7% in Q4, 2020 is not enough to analyze trends.

Booming Amid the Pandemic

For some businesses like Nu Holdings, the pandemic was a catalyst to support their growth. The fintech firm managed to gain a whole new customer base by offering banking services online and navigating an overlooked financial ecosystem in Brazil, all while offering lower fees and a series of new products. This is a big deal.

That said, at over 1,000 times forward price-to-earnings, NU stock is too richly valued. High multiples in 2022 for growth stocks have already been tested and the results were a sell-off in most cases.

Investing in Nu Holdings now is risky not just from a valuation perspective, but also because we have very little financial data. Patience is a virtue, so hold on for now for the next quarter of results.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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