Fintech is a growing industry with many different types of companies creating revolutionary technology to help users manage their finances. Some are focused on the merchant side, while others are geared to personal finance.
One standout in this field is Nu Holdings (NU -0.90%), which is pretty much a bank, but in many ways better. Shares of the Latin American online platform are on fire, up 119% over the past year. This Warren Buffett-backed contender is still in its early growth stages, and there's good reason to think it could go a lot higher.
Let's see where Nu Holdings might be a year from now.
Those lucky Brazilians
Nu is headquartered in Brazil, where it has taken on the large industrial banks and captured a whole lotta market share. As of the end of the 2024 second quarter, 56% of the entire adult population had a Nu account of some sort.
Brazil is the largest country in Latin America, so that 56% represents a lot of people. Along with its smaller presence in Mexico and Colombia, Nu has 104.5 million members, and that number is growing rapidly.
Members like the easy-to-use, all-digital platform that charges low fees and pays high savings rates. Nu was started with the mass market in mind, and based on its success, it's also targeting more-affluent customers these days.
Everyone likes a good product. Some of the ways it's attracting a new, more-affluent clientele is with a credit card geared toward this population, and Nu has the highest net promoter scores among high-income shoppers in the industry.
Revenue increased 65% year over year in the second quarter to $2.8 billion, and average revenue per active customer (ARPAC) was up 30% (on a currency neutral basis) to $11.20. More mature cohorts have already reached $25 in ARPAC, which gives you a sense of where this is going.
Nu offers a wide selection of services, and as a young company, it's working to increase engagement and sell customers on more products. Part of that is a robust credit business that's putting customer funds to good use. Deposits increased 64% over last year in the quarter, net interest income soared 77%, and net interest margin widened by 1.5 percentage points to 19.8%. This is the kind of business Buffett loves.
New markets are also benefiting from Nu
Nu added 1.2 million customers in Mexico in the second quarter for a total of 7.8 million, and it surpassed 1 million members in Colombia. It only recently launched in these regions, and so far, the Mexico business is performing better than the Brazil business did at a similar stage.
The new savings accounts in these countries were responsible for a large portion of total new deposits, with $3.3 billion in the quarter in Mexico and $220 million in Colombia.
These markets aren't profitable yet, but the Brazil business is profitable enough to allow Nu to invest in new growth areas. Its efficiency ratio was 32% in the quarter, up 3.4 percentage points from last year, which management says makes it one of the most operationally efficient financial services companies in the world.
CEO David Vélez sees Nu on track to become the largest consumer technology platform in Latin America.
Investors are also gaining
Nu's story looks solid. There's some inherent risk when investing in international stocks, even more so since there's economic volatility in the company's markets; the inflation rate has been so high that to top it, it has offered a savings account with a 14.75% interest rate.
But the fintech is reporting healthy, profitable growth, and it has a strong management team identifying strategic opportunities leveraging its profitable segments. Buffett's backing is also a stamp of approval since he steers very clear of risky stocks.
In a year from now, expect Nu Holdings to be growing at a healthy pace and reflect higher profitability, as well as having launched new products. Its stock is likely to keep gaining, and it could be a standout in the long term.
