Fintech, or financial technology, has exploded as a global industry. The ability to move money electronically at lightning speed has changed the way the world does business and people consume. As with every industry, there are leaders and laggards. If you're interested in a top fintech stock with vast opportunities, consider Nu Holdings (NU -2.38%).
New to you
U.S. investors may not be familiar with Nu because it operates, under the banner of NuBank, in Latin America. It's headquartered in Brazil, where 54% of the adult population are members, a number that keeps growing. It's now the fourth-largest financial institution in Brazil. It also recently entered Mexico and Colombia, where it's growing quickly.
Nu is all digital, and it offers an easy-to-use interface with low-fee products. It added 5.5 million new members in 2024's first quarter for a total of more than 99 million and has already surpassed 100 million since the close of the first quarter.
Besides adding new customers, Nu generates high growth by cross-selling and upselling new products. It has expanded to a large suite of services including bank accounts, loans, investment products, and more. Average revenue per active customer (ARPAC) increased from $8.6 last year to $11.4 this year in the first quarter, a 30% increase, and total revenue increased 64% year over year (currency neutral).
Image source: Nu Holdings.
Many ways to keep up growth
Although Nu continues to grow in Brazil, Mexico and Colombia represent even larger growth opportunities. It launched a high-rate savings account in Mexico last year, and membership has been accelerating. Nu added 1.5 million new members in Mexico in the first quarter for a total of 6.6 million, and it surpassed 7 million by the time of the report. It's also reaching important key performance indicators at a faster pace than Brazil did at launch. It has $2.3 billion in deposits and 3.2 million credit cards, more than some of the top three banks in the country. It launched the savings account in Colombia earlier this year and has 900,000 members there now.
It's also targeting new markets within Brazil as it moves upmarket to capture a more affluent population. It had the highest net promoter score of any bank for this market in 2023, and its 2024 goals are to launch more products for this cohort, gain members, and increase engagement.
The all-important profit piece
Nu's credit business is also taking off. Deposits increased 53% year over year to $24.3 billion, and the total interest-bearing portfolio increased 86% to $9.7 billion. The higher overall credit portfolio is leading to higher net interest income, which increased 93% year over year in the first quarter; net interest margin widened from 15% to 19.5%.
Cost to serve per active customers increased from $0.8 last year to $0.9, which has been steady for the past three quarters. The increase in ARPAC with only minimal increase in cost to serve, along with higher net interest income and margin, is creating robust profitability. Net income increased from $142 million in Q1 last year to $379 million in Q1 this year.
Nu's efficiency ratio -- which measures non-interest operating expense as a share of revenue -- has steadily declined over time, from 91.6% when it went public in 2021 to 32.1% in 2024's first quarter.
Don't miss this unstoppable stock
Nu stock jumped 5% after its first-quarter report, and it's up 45% in 2024 after more than doubling last year. It has varied growth opportunities, and it's generating higher profits as it scales.
There aren't too many early-stage opportunities like this on the market, and it's a rare growth stock that's caught Warren Buffett's eye. Nu stock trades at a forward one-year price-to-earnings ratio of 21, a bargain for a high-growth stock. Smart investors should consider buying it today.
