Shareholders of Nu Holdings (NYSE: NU) had a hard time during the first year or so that the company was public. But it’s been a fantastic story after the lows.
Since the start of 2023, this fintech stock has soared 243% (as of Nov. 26). And the momentum has continued into 2024, although it’s been a volatile journey.
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Could buying Nu today set you up for life?
Gone are the days of consumers having to visit their local branch to take care of anything related to their money needs. Smartphones and the internet have changed financial services, allowing a business like Nu to offer bank accounts and credit cards, among other things, digitally to consumers.
The company has been growing like wildfire. Nu posted $2.9 billion in revenue in the last three months, a figure that was 56% higher than in the same period last year. The company has 110 million customers today, compared to just 48 million three years ago. Nu has a strong position in its main market of Brazil, but it has started to make progress in newer countries like Mexico and Colombia.
Investors should be optimistic about the future. According to Latin America Reports, an estimated 70% of the population in this region of the world remains unbanked or underbanked, giving Nu a huge opportunity.
Nu’s top-line growth has translated into unbelievable profitability. Net income surged 107% year over year to $553 million in Q3. The profit margin expanded considerably in the last 12 months.
One clear sign of a high-quality business is the presence of an economic moat. Typically, younger companies haven’t yet established durable competitive advantages. However, I think Nu has reached a point where its moat should be obvious to the investment community.
As is the case for dominant banking providers, switching costs play a prominent role. Once a consumer decides to use the financial services of a specific company, linking all their various accounts and getting familiar with how things operate, they become less inclined to change providers. A certain level of trust can be built with Nu when its customers can count on it as a reliable financial partner for their everyday needs.
The average Nu customer uses four different products from the company. And 60% use Nu as their main banking account. This proves that the business has established a favorable position that should benefit it for a long time.
