To The Moon

Full $Nu Holdings Ltd.(NU)$ investment thesis 👇

$Nu Holdings Ltd.(NU)$ is the largest fintech in Latin America and one of the largest in the world. To put it into perspective, they have 109.7 million customers and 91.7 million monthly active customers with 100 million of these being in Brazil. The population of adults between 16-65 in Brazil is 143 million meaning they've acquired 70% of Brazil's population. That's incredible.

To add to this, $Nu Holdings Ltd.(NU)$ are growing incredibly fast in Mexico and Colombia and I think Argentina will be the next area for investment in 2-3 years.

This thread will dive into what $Nu Holdings Ltd.(NU)$ does, the valuation, competitors, financials, opportunities, recent news, and the LatAm outlook.

• $Nu Holdings Ltd.(NU)$ was founded in 2013 and they've now grown to 110 million customers. For reference, $SoFi Technologies Inc.(SOFI)$ has 10 million and $PYPL has 432 million.

• The company were one of the first digital banks in LatAm and they have been a key part of the industry transformation in that area. They've become experts at leveraging data, developing proprietary technology, & innovation to become one of the best fintechs in the world, let alone in LatAm.

• $Nu Holdings Ltd.(NU)$ entered the market at the perfect time as investment into digital infrastructure in Brazil has boomed. Now over 80% of the population have access to the internet. This has subsequently led to a sharp decline in cash payments down 26% YoY.

• They're becoming much more digitally empowered each quarter and the leading fintechs will continue to ride this wave. To show you the growth potential in Brazil still, $NU is only the 4th largest publicly traded bank behind traditional banks like Banco de Brasil, Banco BTG Pactual, Itau, and Banco Bradesco. There's still a large runway for growth in Brazil (we'll get to the opportunity in Mexico and Colombia shortly).

$Nu Holdings Ltd.(NU)$ has some of the best fundamentals I've seen. Here's why:

1. Customer growth is accelerating at 23% YoY whilst revenue is growing at 56.7% YoY. This shows how good management are at monetizing their existing customer base. They do not need to rely on new customers to increase revenue.

2. ARPAC is at $11.0 but more mature accounts is at $25. This shows that with time, consumers note the value that $NU has to offer and their monthly revenue essentially more than doubles over time. ARPAC is growing at 84% YoY and this is the 12th consecutive quarter in which the rate of increase in ARPAC has growth. That's spectacular.

3. Despite ARPAC rising considerably, the monthly average cost per active customer has stabilized well below $1 (currently $0.7). This is one of the most cost effective banks in the entire world providing them with a significant competitive advantage.

4. 15-90 NPL ratio (measures proportion of loans that are past due for 15-90 days relative to total loan portfolio) dropped to 4.4%. 90+ NPL's did increase to 7.2% but this was fully in line with management's expansion plans to optimize the NPV of each customer rather than short term swings in the NPL metrics.

5. In Q3, $Nu Holdings Ltd.(NU)$ posted a ROE of 30% with $553 million in net income...with a excess cash balance of $2.4 billion. This means they can continue to bring in incredible income, whilst also investing heavily in expansion.

6. Gross profit increased 67% YoY with a gross margin of 46%.

7. $NU's interest earning portfolio ($11.2 billion) has increased 81% YoY.

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The geographic expansion opportunities for $NU are pretty immense.

I mentioned previously about the growth in Brazil but let's look at the numbers in Mexico and Colombia here where things are just getting started.

Mexico has a working age population of 64.6 million and $NU added 1.2 million Mexican customers in Q3 alone. That means they added ~2% of the Mexican population in 3 months.

$Nu Holdings Ltd.(NU)$ also now have 8.9 million customers from Mexico meaning in 1 quarter they added 13.4% of their entire Mexico population.

In Colombia, $NU have acquired less than 4% of the entire population so there's absolutely huge growth to go here too.

When you combine these growth opportunities with how good $Nu Holdings Ltd.(NU)$ are at improving ARPAC, it's pretty staggering to think about the runway for this company.

In terms of competition, I'm not too worried.

Direct fintech competitors:

1. $MELI (through Mercado Pago)

2. PicPay

Mercado Pago revenue growth = 20.79%

PicPay = 52%

$NU = 56.6%

The other competition comes from traditional banks but they're growth is far inferior to $NU. The general trend is also moving very quickly away from traditional banks.

I'll talk more in depth about this in my newsletter, but I don't see them as a long term threat to $NU at the moment.

$Nu Holdings Ltd.(NU)$ has dropped 24% from its november high because the Brazilian central bank issues a plan to tackle to troubled budget deficit cutting $12 billion in spending.

They also included salary ceilings for public employees, tax hikes for the wealthy, and tax exemptions for low income individuals. It's safe to say the news wasn't liked by the market as it didn't take these plans seriously enough to fix the huge deficit.

What's the issue for $Nu Holdings Ltd.(NU)$ ?

A more fragile economy for Brazil as there will be lower federal spending, weak consumer confidence, weak currency, and a high interest rate.

$Nu Holdings Ltd.(NU)$ is very sensitive to interest rates because of their huge credit division. I think the next year or so will be difficult for $NU because of the macro difficulties Brazil will face. The business will have some headwinds but most of all investor confidence in LatAm will no doubt weaken.

I won't be surprised to see some further downside for $Nu Holdings Ltd.(NU)$ into the $10s and even single digits. Long term (where it matters), $Nu Holdings Ltd.(NU)$ are experts are working their way through the difficulties of the LatAm macro environment.

The business is very strong and will continue to be very strong. I think we may see some pressure on margins and delinquency rates, but I don't suspect growth in Brazil, Mexico, or Colombia will be halted too much. Weaker will fail to adapt to the tough environment which will only help $NU dominate the entire market even more and put pricing power even more in their hands. Short term troubles. I'll buy more and more. Thanks to Mr. Market.

$Nu Holdings Ltd.(NU)$ has a PEG GAAP (TTM) of 0.10x.

Competitors like $JPM have a PEG of 1.9x. EPS estimates are a CAGR of 50% through to 2028 which means a 20.9x NTM PE multiple look very reasonable.

If $Nu Holdings Ltd.(NU)$ can get EPS to $2.1 in 2028 (just slightly over 50% CAGR) with a PE multiple of 25x...

$Nu Holdings Ltd.(NU)$ $NU is a $52.50 stock. That's a 356% increase in 4 years.