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NuBank Isn’t Making Money Yet, but Numbers Are Improving

NU stock - NuBank Isn’t Making Money Yet, but Numbers Are Improving

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Nu Holdings (NYSE:NU) is a recent initial public offering (IPO) hailing from Brazil. Nu intends to become a leading banking platform for customers in large Latin American countries such as Brazil, Mexico, and Colombia. It stands out from peers in that it is a digital-first platform. Most leading Latin American banks, by contrast, are not particularly technologically-savvy and have been comfortable serving upper-class customers in traditional bank branch settings for many years. As Nu’s management tells it, the company has a tremendous opportunity to offer banking services to the unbanked while generating a tidy profit, as well. However, NU stock has not yet reflected this optimism.

So far, Nu’s financial results have been pretty grim. When I first looked at the IPO in 2021, it was an easy pass for me given the large operating losses and current political headwinds in South America. I do own Colombian banks, such as Bancolcombia (NYSE:CIB), and Brazilian payments player StoneCo (NASDAQ:STNE), so I’m not against the concept. I just couldn’t get behind Nu with its results.

That said, a fresh look at NU stock after its fourth quarter of 2021 results puts things in a better view. Nu’s focus has always been on building scale first and getting to profitability later. And we’re starting to see signs that there may be light at the end of that tunnel. Nu’s issue has never been on the top-line growth. It boosted customer deposits from $0.6 billion in 2018 to $9.7 billion as of year-end 2021. And the company has grown its customer base from 6 million to 53.9 million over that same span.

The issue has been on the cost side of the picture. In 2018, 2019, and 2020, Nu lost $29 million, $93 million and $171 million in each year. As you can see, that figure had been trending rapidly in the wrong direction. And 2021’s $165 million loss looks no better by comparison. However, on an adjusted income basis, Nu actually scratched out a small profit in 2021 — its first. While adjusted net income excludes very real costs from a business, it suggests that on a core operating basis, Nu may be getting close to breaking even. The reason for this appears to be found in its cohort data. Customers that have been with Nu since 2017 are now generating $10 or more in monthly average revenue for the bank. Meanwhile, new customers that just signed up over the past year only generate a couple of dollars in monthly revenues to Nu.

As clients get more familiar with the app, they tend to sign up for more Nu products. This cross-selling of different financial services eventually allows Nu to recoup its customer acquisition cost and start generating a profit. And the financial metrics have been picking up a bit in recent quarters as Latin America rapidly bounces back from the Covid-19 pandemic. Is it all clear skies ahead for NU stock? No. Both Brazil and Colombia face heated presidential elections this year. And Nu’s valuation is still fairly generous for a company that has a lot more to prove in terms of becoming consistently profitable. Still, things are starting to trend in the right direction, and that is progress.

On the date of publication, Ian Bezek held a long position in CIB and STNE stock. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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