Predicting the future position of Nu Holdings' stocks over a decade is an uncertain endeavor.
Predicting the future position of Nu Holdings' stocks over a decade is an uncertain endeavor.
The largest neobank in the Western world's western hemisphere is a company you've probably never crossed paths with. Nu Holdings (NU 3.20%) is the granddaddy of Nu Bank, a digital bank that's making waves in Latin America. Starting its journey in Brazil, the bank and financial services platform has given the traditional, legacy institutions a run for their money, with nearly 100 million active customers on its roster.
This growth stock could be an exhilarating fintech investment in the growth of the Latin American market. Where will Nu Holdings stock find itself in 10 years?
Simplifying banking in Brazil and beyond
Lousy banking services can leave customers feeling frustrated. Confusing rules, high fees, and long queues are all too common in Latin American markets. Nu Bank's founders experienced this firsthand when they started working in Brazil. It was then—in 2013—that the idea for this venture was born. The company developed a smartphone app to simplify banking, spending, and financial services in a market that neglected its customers. And voila! The idea was a hit.
Today, Nu Bank boasts 100 million total customers and 92 million that interact with its platform each month. It offers personal banking, credit and debit cards, and an ever-expanding list of personal finance products. In fact, management now estimates over half of Brazil's adult population uses a Nu Bank product.
While customer growth in Brazil may soon level off, Nu Holdings isn't sitting on its laurels. It has ventured into the Mexican and Colombian markets, boasting 8.9 million and 2 million customers, respectively. It has only set foot in these three markets, but there are numerous other Central and South American countries it can eventually invade. Argentina is currently recovering from a hyperinflationary period and boasts a population of just under 50 million people, for instance.
Wagering on Latin America's economic growth
As a bank and credit card platform, Nu Bank makes more money when people spend more, save more, and borrow more through its platform. It's that straightforward.
All three activities grow in tandem with economic growth. Nu Holdings has managed to win over a significant number of customers in these Latin American markets. But investors should ask: Should we be bullish on these Latin American economies and the growing wealth of these customers?
I believe so. Mexico's GDP has been on a roll in recent years and should benefit from increased reshoring investments from the United States. Brazil's GDP has bounced back after years of struggle. Argentina's new president has helped fight hyperinflation and is more pro-business. Most of these Latin American countries have robust population pyramids, with a larger percentage of the population as young adults that will enter their prime spending years over the next decade. These are much better demographic profiles, economically speaking, compared to places like Europe or East Asia.
The story will undoubtedly be more convoluted than this, of course. Some countries will perform better than others. But overall, Latin America should be significantly wealthier in 10 years than it is now, which will be advantageous for Nu Holdings.
Where will the stock be in 10 years?
Nu Holdings has transformed from less than 1 million active customers to nearly 100 million in less than 10 years. In the next decade, I think it can hit the 200 million active customer mark as long as it continues expanding into new Latin American countries. Population projections suggest the region will reach about 700 million people in 2030. Total households will likely be fewer, but there is still plenty of room for Nu Bank to grow in the coming years.
With general economic growth, I anticipate Nu Bank's spending per active customer will at least double over the next decade as well. In fact, monthly spending per active customer is already increasing dramatically, more than doubling from December 2021 through December 2023. In 10 years, I believe Nu Bank can at least double this figure, if not more.
Which brings us to financial estimates. If customers and spend per customer can double, its revenue will quadruple during the next 10 years. Add in some operational efficiency and economies of scale, and I believe its underlying earnings potential can quintuple.
Over the past 12 months, Nu Holdings reported $1.78 billion in net income. Multiply that figure by five, and you get $8.9 billion in net income in 10 years. Apply a reasonable price-to-earnings ratio (P/E) of 20, and you get a market cap of $178 billion, or about triple its current market cap.
This suggests Nu Holdings stock could rise threefold during the next 10 years – if not more – as long as its earnings can keep growing at a brisk pace. Given its impressive track record and consumer experience, I believe it can. Nu Holdings stock looks like a buy today for investors focused on the long term.
Nu Holdings' expansion into new markets, such as Argentina, presents a potential for significant growth, given its population of nearly 50 million people. Investing in Nu Holdings could prove beneficial as economic growth in Latin American countries like Mexico and Brazil, along with increasing reshoring investments, could lead to increased spending, saving, and borrowing through Nu Bank's platform. With its innovative approach to simplifying banking and financial services, Nu Holdings has the potential to reach 200 million active customers in the next decade, potentially quadrupling its current revenue and seeing its market cap triple, making it a compelling investment opportunity for long-term investors.