Where will Nu Stock be in 1 year?

Fintech is a growing industry with many different types of companies creating revolutionary technologies to help users manage their finances. Some are focused on the merchant side, while others are geared toward personal finance.

A standout in this field is Not Holdings (NOT 0.36%)which is almost a bank, but in many ways better. Shares of the Latin American online platform are on fire, up 119% in the past year. This Warren Buffett-backed contender is still in its early stages of growth, and there’s good reason to believe it could go much higher.

Let’s see where Nu Holdings could be in a year.

Those lucky Brazilians

It is not headquartered in Brazil, where it has taken on the big industrial banks and captured a lot of market share. At the end of the second quarter of 2024, 56% of the entire adult population had a No account of some kind.

Brazil is the largest country in Latin America, so 56% is a lot of people. In addition to its smaller presence in Mexico and Colombia, Nu has 104.5 million members, and that number is growing rapidly.

Members love the fully digital, easy-to-use platform that charges low fees and pays high savings rates. It was not launched with the mass market in mind, and based on its success, it also targets 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 demographic, and Nu has the highest net promotion scores among high-income shoppers in the industry.

Revenue rose 65% year-over-year in the second quarter to $2.8 billion, and average revenue per active customer (ARPAC) rose 30% (on a currency-neutral basis) to 11.20 USD. More mature cohorts have already hit $25 in ARPAC, which gives you an idea of ​​where this is headed.

They don’t offer a wide range of services and as a young company they are working to increase engagement and cross-sell customers. Part of this is a solid lending business that leverages customer funds. Deposits grew 64% year-over-year in the quarter, net interest income rose 77%, and net interest margin increased 1.5 percentage points to 19.8%. This is the kind of business Buffett loves.

New markets also benefit from Nu

It added 1.2 million customers in Mexico in the second quarter, for a total of 7.8 million, and surpassed 1 million members in Colombia. It has only recently launched in these regions and so far the business in Mexico is performing better than Brazil at a similar stage.

New savings accounts in these countries were responsible for a large share of total new deposits, with $3.3 billion in the quarter in Mexico and $220 million in Colombia.

These markets are not yet profitable, but the business in Brazil is profitable enough to allow Nu to invest in new growth areas. Its efficiency ratio was 32 percent in the quarter, up 3.4 percentage points from last year, which management says makes it one of the most efficient financial services companies in the world.

CEO David Vélez believes that Nu is on track to become the largest consumer technology platform in Latin America.

Investors also win

Nu’s story doesn’t seem solid. There is some inherent risk when investing in international stocks, especially as there is economic volatility in the company’s markets; the rate of inflation was so high that in addition it offered a savings account with an interest of 14.75%.

But the fintech is reporting healthy, profitable growth and has a strong management team that is identifying strategic opportunities by capitalizing on its profitable segments. Buffett’s endorsement is also a stamp of approval because he steers clear of risky stocks.

A year from now, expect Nu Holdings to grow at a healthy pace and reflect higher profitability as well as launch new products. Its stock is likely to continue to gain and could be outstanding over the long term.