The Decrease of Nu Holdings' Stock by 17% in December
Shares of Nu Holdings (NU 3.20%) saw a 17% decrease in December, as per data from S&P Global Market Intelligence. The drop can be attributed to investor concerns over rising inflation and market volatility in Brazil, coupled with an unfavorable market reaction to a recent investment announcement.
Nu's Recent Developments
Since its public listing three years ago, Nu has consistently demonstrated impressive growth, marked by high revenue increases and soaring profits. It boasts a robust credit business that has continued to expand.
Revenue surged by 56% year over year in the third quarter, boosting net income from $303 million to $553 million. The company added 5.2 million new customers in the quarter, bringing its total to 109.7 million, with 98.8 million being based in Brazil. Despite continuing to attract a substantial number of new members in Brazil (over 1 million per month), its expansion rate is even faster in other markets such as Mexico and Colombia.
However, inflation remains prevalent in Brazil, and the depreciation of the Brazilian real has left investors uneasy. On top of that, management recently announced a $150 million investment in Tyme Group, a hybrid digital bank with a physical presence in South Africa and the Philippines. The management team sees potential synergies between the two companies and aims to leverage its model to develop Tyme and replicate its success. They also view this as a means to drive new business and create a global, interconnected, digital banking giant. The market, however, seemed less enthusiastic, potentially viewing this move as misplaced while dealing with domestic issues.
Buffett's Long-Term Bet
Warren Buffett holds shares of Nu as part of Berkshire Hathaway's equity portfolio, despite having sold off a portion last year. He currently maintains a 1.8% stake in the company.
Despite the recent volatility, Nu offers substantial long-term opportunities. It continues to add members at a steady pace in Brazil, while also boosting customer engagement through the provision of low-cost products and the encouragement of additional service subscriptions. This has resulted in increases in average revenue per active user. The company has also started targeting the affluent market segment, which has the potential for higher revenues.
Outside Brazil, Nu is just beginning to make its mark, with 8.9 million members in Mexico and 2 million in Colombia. There's also room for future expansion in these and other markets.
While Nu may not appeal to risk-averse investors, those with a long-term perspective and the willingness to weather short-term volatility could find it an attractive investment option at the current price.
The recent investment of $150 million into Tyme Group by Nu might have been viewed as misplaced by the market, given the ongoing concerns over inflation and market volatility in Brazil. Investors, focused on finance and seeking profitable opportunities, may still find Nu appealing due to its long-term growth prospects, robust credit business, and expansion in other markets such as Mexico and Colombia.
