The new kid on the block
Brazil’s Nubank is the poster child of Latin America’s fintech boom. But it is pricey and faces intense competition. Matthew Partridge reports
Shares in the Brazilian fintech Nubank leapt after it floated in New York last week, making it “the most valuable financial group in Latin America”, say Michael Pooler and Nicholas Megaw in the Financial Times. Worth around $45bn, its market capitalisation has eclipsed that of Brazil’s largest traditional bank, Itaú Unibanco. The São Paulobased group has amassed “more than 48 million users of its mobile app-based services”, through which it offers savings accounts, business loans, insurance and investment products.
Nubank’s strong debut is good news for investors in Latin American fintech, says Bloomberg. This includes Warren Buffett’s Berkshire Hathaway, which took a $500m stake in the company during the summer when it was valued at only $30bn. An even bigger winner is US venture-capitalist group Sequoia Capital, which initially invested $1m in seed capital in 2013 and has now accumulated a stake worth $8.2bn. Even Japan’s SoftBank, the world’s biggest technology investor, has joined the party, buying into the initial public offering (IPO) in the hope that Nubank “can get to 100 million-150 million customers in five years and be worth as much as $300bn”.
A warning in the prospectus
Nubank has certainly had an “eye-catching” rise to the top, says Richard Beales on Breakingviews. However, investors should note that it is now valued at ten times its tangible book value. Moreover, “established banks have plenty of resources to fight disruptors”, while Nubank’s no-fee credit card “has attracted rival products”. Throw in a Covid-19-related economic slowdown in Brazil and the fact that even its own prospectus admits that there are “material weaknesses in its financial reporting”, and you realise that the company may be the region’s “riskiest punt”.
Nubank’s success depends on whether it’s going to be able to continue its “phenomenal” growth story, says Matt Frankel on The Motley Fool. Its current trajectory of doubling its customers every two to three years isn’t sustainable. Still, the fact that the average customer “has just one or two products with the company” means there is still ample cross-selling potential, with scope for six or seven products per customer. If it can do this, then the company might “have legs” as an investment.
While Nubank may have become the “poster child of the fintech boom in Latin America”, it “isn’t alone”, says Mary Anastasia O’Grady in The Wall Street Journal. Indeed, the digital technology revolution“that has up ended the transportation, food-service, retail and telecommunication industries in the region is doing the same in financial services”. There are “hundreds of other fintech companies across Latin America”. With a variety of business models being tested, “it will be interesting to see if companies providing specific financial services turn out to be more valuable than the sum of the parts held by traditional banks”.