Nu Holdings (NU) stock price has done well this year, helped by its strong momentum in Brazil and other Latin American countries like Mexico and Colombia. It has jumped by over 64% this year and by 74.5% in the last twelve months, bringing its market cap to over $65 billion.
This valuation makes Nu Holdings the second-biggest company in Brazil after Petrobras, the giant oil and gas firm.
Nu Holdings business is doing well
Nu Holdings has grown to become the biggest neobank in the world in terms of users and valuation. In the past seven years, the firm has moved from almost zero customers to over 104.5 million members today.
Its annual revenue has jumped from $337 million in 2019 to over $6.4 billion in 2023, meaning that the trend will continue. Analysts expect that its annual revenue will jump to over $11.2 billion this year followed by $14.4 billion next year.
Nu has become so popular such that the number of customers is equivalent to 56% of Brazil’s population. These customers use Nu for the simplicity of its application, lower costs compared to other banks, and its mobile-first strategy. Its customer activity rate has continued rising, reaching 83.3%.
Nu Holdings business has also done well because the company has increased the number of services offered. It has introduced credit cards, which now have over 40.6 million customers, unsecured loans, investments, Buy Now Pay Later (BNPL), and SME accounts. In other words, Nu has become an all-r0unded application where users can do all their financial transactions.
Nu Holdings earnings ahead
The next important catalyst for the Nu Holdings stock price will be its earnings, which are scheduled to happen on November 12.
These results will provide more color on the state of the company, and whether its revenue growth is continuing.
The most recent financial results showed that its second-quarter revenue rose to over $2.8 billion, a big increase from the $1.8 billion it made in the same period last year. Its revenues have had over 50% revenue growth in the past few quarters.
Nu Holdings’ profitability has continued doing well in the past few quarters. Gross profit rose from over $782 million in the second quarter of 2023 to over $1.35 billion.
Its net income has improved from $225 million in Q2’23 to over $487 million. This profitability is happening because, unlike traditional banks, Nu has no local branches.
It has about 8,000 employees, much lower than other comparable banks. For example, Itau Unibanco, the biggest bank in Brazil has over 90,000 employees, while Banco Santander Brasil has over 45k people. Additionally, it has a more compounding effect, which leads to more revenues per customer.
Higher interest rates have also led to net interest income, which has grown from over $1.04 billion in the second quarter of 2023 to over $1.71 billion.
Analysts expect the Nu Holdings has more revenue and profitability growth ahead. Analysts expect that Nu Holdings’ quarterly revenue will grow by 44.1% in the current quarter to over $2.96 billion.
The fourth-quarter revenue will then grow by 30% to $3.15 billion. Its annual revenue will get to $11.25 billion this year followed by $14.43 billion in the next year.
NU’s valuation is expensive
Therefore, if this trend continues, Nu Holdings’ revenue will get to $20 billion in 2027, and possibly $30 billion in 2030. If this happens, the company will be highly profitable since its net income margin is 31% during its growth phase. In the future, this margin could get to over 40%, higher than other companies.
For example, JPMorgan, often seen as a gold standard for the banking sector, has a net income margin of 33%. Similarly, Goldman Sachs has a margin of 23%, while Bank of America has 26%.
Therefore, Nu Holdings hefty valuation can be justified. The company has a forward P/E ratio of 33 is much higher than the sector median of 12. Its forward price-to-sales rose to 5.6, also higher than the sector median of 2.9.
Nu Holdings stock price analysis
NU chart by TradingView
The daily chart shows that the NU stock chart has been in a strong bull run in the past few years. Most recently, it has formed an inverse head and shoulders chart pattern, one of the most popular bullish signs in the market.
The stock sits above the 50-day and 100-day Exponential Moving Averages (EMA), while the MACD indicator has drifted downwards. The Relative Strength Index (RSI) has moved upwards.
Therefore, the stock will likely continue rising in the near term, as bulls target the year-to-date high of $15. A break above that level will point to more gains as bulls target the next point at $20.
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