thanks a lot for sharing it. Would appreciate it if you could please guide me about following questions
1- Is it fair to compare the Neo-banks ratio with traditional banks, of course, they would always be better from almost all perspectives. It's not an apple-to-apple comparison. How can I get a Neo-to-Neo comparison? Thousands of Neo-banks will open in the coming decade but only a few will survive, how can I get a mental lens to measure which ones will survive, the metrics to measure the health of Neo should be different from traditional banks even though their basic principles are the same? scale economies and network effects are amazing, but "Shared Scale Economies" would have been better, I am not sure of any bank that implements this except WISE in fintech. Neo is fundamentally different from traditional banks. like Netflix was from blockbuster.
2- Is there a way to get more detail about the asset side as this is where they will mess up. The deposit side will go up surely as of its value proposition. But loans can be boiling something bad under the rug and we would never see it easily as we would be blinded by the KPIs (NPL, ARPAC, NIM, customer growth, new geography entries, etc.) defined by the bank for us to see, and a day explosion would happen on the asset side. FX risk, credit risk, currency risk, regulation risk, I found nothing special mentioned on their financial statements. They just say, they are managing, but only make us see a rosy picture like CAR ratio, NPLs. I am trying to find more information where I can smell anything bad. NU Bank seems too good to be true honestly, I had to be skeptical.
3- I belong to Pakistan where high fed rates are normal and the same in Brazil, hence I can understand more default rates due to a bad economy, but 10 years later, when interest rates would normalize, what the 'normalized earnings' would look alike or we should say since NU survived in hard economic times (high interest rates), therefore it would glow in good economic times (lesser interest rate income, hence less interest income)
I have been researching Wise for the last 2 months, I found NU beyond my circle of complete, it seems too complex especially the asset side that's why I have questions I guess. I am trying to see what my opportunity cost for Wise Vs NU vs other companies.
This potential is reflected in the ARPAC growth I have forecasted. As mentioned in the report, ARPAC for incumbent banks in Brazil is estimated to be 4.5 times higher than Nu’s. Nu has the potential to increase its ARPAC by capturing a greater share of the wallet and cross-selling additional products, some of which they may not currently offer.
Well written thesis! I wonder how you came up with the forecasted revenue growth rates over the next five years? It looks like you multiplied total customers by average revenue per customer. But then the question arises how you figured growth rates for total customers and growth rates for average revenue per customer. Is there any data to support these growth rates in the coming years?
My point is that in order for Nu Holdings to be a good investment at the current price, revenue must grow at least 20% each year for the next few years. Which will be a harder task every year as this company gets bigger and bigger...
Thanks for the feedback and question. As indicated in the analysis, revenue growth is a product of total customers and average revenue per customer.
In terms of total customers, growth will come from geographical expansion. Nubank is still very early in Mexico and Colombia but is trending ahead of its performance in Brazil at a comparable point. 65% of Latin America is still unbanked, and this is the key driver of total customer growth.
Average revenue per customer growth is based on Nubank cross-selling additional products and becoming the primary bank for its users. Think of the five financial seasons: Spending, Saving, Investing, Borrowing, and Protecting. At present, the average revenue per customer of the incumbent banks in Brazil is 4.5 times higher than Nubank's, and this represents the key driver of average revenue per customer.
Nubank has many levers to explore when it comes to revenue growth, and this is what makes the company attractive. This is without discussing the potential for expansion outside Latin America into other unbanked regions.
I understand that there are plenty of growth drivers to increase average revenue per customer and total number of customers. In fact, you mention that in your investment thesis.
But my point is if that will be enough for the company to grow revenue by 20% for the next 4-5 years. Especially if there is some competition in the next few years. We'll see. It is certainly feasible. However, not easy.
Indeed and that’s what makes investing an art not a science, nobody knows what the future holds. Nobody guessed 20 years ago that Microsoft would be growing its top line by double digits today in 2024.
A question: Do you think Nu Holdings will penetrate US market in the future or Europe?? Do you see that possible? Of course, after Nu enters in the rest of Latin America.
In order of priority I think it would be: 1. The rest of Latin America. 2. Asia. 3. Hispanic areas of North America. 4. Europe.
I don’t think David has ruled out anything judging by his comments but my thesis is not based on success outside of Latin America. That is all a bonus.
Great report, the results of scale and the network effects are so strong. That chart of Gen&Admin expenses collapsing from 40% to 12% is so indicative of the core thesis. Legacy bank are inefficient dinosaurs.
thanks a lot for sharing it. Would appreciate it if you could please guide me about following questions
1- Is it fair to compare the Neo-banks ratio with traditional banks, of course, they would always be better from almost all perspectives. It's not an apple-to-apple comparison. How can I get a Neo-to-Neo comparison? Thousands of Neo-banks will open in the coming decade but only a few will survive, how can I get a mental lens to measure which ones will survive, the metrics to measure the health of Neo should be different from traditional banks even though their basic principles are the same? scale economies and network effects are amazing, but "Shared Scale Economies" would have been better, I am not sure of any bank that implements this except WISE in fintech. Neo is fundamentally different from traditional banks. like Netflix was from blockbuster.
2- Is there a way to get more detail about the asset side as this is where they will mess up. The deposit side will go up surely as of its value proposition. But loans can be boiling something bad under the rug and we would never see it easily as we would be blinded by the KPIs (NPL, ARPAC, NIM, customer growth, new geography entries, etc.) defined by the bank for us to see, and a day explosion would happen on the asset side. FX risk, credit risk, currency risk, regulation risk, I found nothing special mentioned on their financial statements. They just say, they are managing, but only make us see a rosy picture like CAR ratio, NPLs. I am trying to find more information where I can smell anything bad. NU Bank seems too good to be true honestly, I had to be skeptical.
3- I belong to Pakistan where high fed rates are normal and the same in Brazil, hence I can understand more default rates due to a bad economy, but 10 years later, when interest rates would normalize, what the 'normalized earnings' would look alike or we should say since NU survived in hard economic times (high interest rates), therefore it would glow in good economic times (lesser interest rate income, hence less interest income)
I have been researching Wise for the last 2 months, I found NU beyond my circle of complete, it seems too complex especially the asset side that's why I have questions I guess. I am trying to see what my opportunity cost for Wise Vs NU vs other companies.
your guidance would be of great help.
Could Nu expand into traditional banking markets such as housing and auto financing?
There is no reason to suggest it can’t.
Any further thoughts on this upside potential? :)
This potential is reflected in the ARPAC growth I have forecasted. As mentioned in the report, ARPAC for incumbent banks in Brazil is estimated to be 4.5 times higher than Nu’s. Nu has the potential to increase its ARPAC by capturing a greater share of the wallet and cross-selling additional products, some of which they may not currently offer.
Thanks!
Good
Well written thesis! I wonder how you came up with the forecasted revenue growth rates over the next five years? It looks like you multiplied total customers by average revenue per customer. But then the question arises how you figured growth rates for total customers and growth rates for average revenue per customer. Is there any data to support these growth rates in the coming years?
My point is that in order for Nu Holdings to be a good investment at the current price, revenue must grow at least 20% each year for the next few years. Which will be a harder task every year as this company gets bigger and bigger...
Hi Kunst,
Thanks for the feedback and question. As indicated in the analysis, revenue growth is a product of total customers and average revenue per customer.
In terms of total customers, growth will come from geographical expansion. Nubank is still very early in Mexico and Colombia but is trending ahead of its performance in Brazil at a comparable point. 65% of Latin America is still unbanked, and this is the key driver of total customer growth.
Average revenue per customer growth is based on Nubank cross-selling additional products and becoming the primary bank for its users. Think of the five financial seasons: Spending, Saving, Investing, Borrowing, and Protecting. At present, the average revenue per customer of the incumbent banks in Brazil is 4.5 times higher than Nubank's, and this represents the key driver of average revenue per customer.
Nubank has many levers to explore when it comes to revenue growth, and this is what makes the company attractive. This is without discussing the potential for expansion outside Latin America into other unbanked regions.
I hope that answers your question.
I understand that there are plenty of growth drivers to increase average revenue per customer and total number of customers. In fact, you mention that in your investment thesis.
But my point is if that will be enough for the company to grow revenue by 20% for the next 4-5 years. Especially if there is some competition in the next few years. We'll see. It is certainly feasible. However, not easy.
Indeed and that’s what makes investing an art not a science, nobody knows what the future holds. Nobody guessed 20 years ago that Microsoft would be growing its top line by double digits today in 2024.
Excellent Thesis of an impressive company! Continue like this Wolf!💪💪
Thanks for the feedback Tomas, glad to hear you found it valuable 👍
A question: Do you think Nu Holdings will penetrate US market in the future or Europe?? Do you see that possible? Of course, after Nu enters in the rest of Latin America.
In order of priority I think it would be: 1. The rest of Latin America. 2. Asia. 3. Hispanic areas of North America. 4. Europe.
I don’t think David has ruled out anything judging by his comments but my thesis is not based on success outside of Latin America. That is all a bonus.
Great report, the results of scale and the network effects are so strong. That chart of Gen&Admin expenses collapsing from 40% to 12% is so indicative of the core thesis. Legacy bank are inefficient dinosaurs.
Thanks Ray. It is quite a unique business model. Rarely do you get to observe a young company exhibit so may text book competitive advantages at once.
Great overview
Thank you
Great thesis!
Thank you for the feedback, much appreciated