22d (edited) • General discussion
Nubank
From a GARP principles perspective I thought maybe Nubank, trading on the New York Stock Exchange, starts to look interesting since it recently came down below PE 25 level.
Nubank is a digital bank in Latin America. You have no physical offices where you can visit them as a bank customer, only online. They were founded 13 years ago, so they are pretty new, but they already had time to make a large impact in the financial sector in Latin America. In 2013 when they first started in Brazil they grew quickly purely through word of mouth without any advertising. One explanation to that could be that they are obsessed with making their customers happy. They often mention that "we want our customers to love us fanatically". In Brazil they already have 113 million customers.
They stayed focused on their home market Brazil until they expanded to Mexico in 2019 and Colombia in 2020. Where they today have 14 million and 4 million respectively. They have been talking for years that they want to expand outside of Latin America. I have always been thinking that only being active in Latin America feels a bit risky and I got very happy when they announced recently that their next expansion will be to enter the US market. They have used the same playbook in the new countries as they used in Brazil. They have said that Mexico scaled faster than Brazil. Then Colombia has scaled even faster than Mexico on a population-adjusted basis. It seems like they learn and improve for each new country they enter into. If they can just get some kind of traction in the US financial sector which is huge, I think the future looks very exciting for them.
Before David Vélez founded Nubank (who is CEO and has 73% voting power) he worked at places like Morgan Stanley and Goldman Sachs, but always wanted to start his own company. He then quit to "take a break" in 2010 by reading a MBA at Stanford where he was supposed to brainstorm regarding which business he would like to start. A few months into the MBA, Sequoia, one of the largest and most famous venture capital firms in the world, got to know that he started the MBA and recruited him. In parallel with his MBA he worked for Sequoia to setup their VC business in Brazil, from scratch, by investing in start ups in Brazil. In the summer of 2012, only a few month after he finished his MBA, Sequoia decided to shut down their Brazil initiative due to the lack of interesting start up companies in Brazil at the time. He founded Nubank in 2013 and he is now 45 years old. My feeling is that building Nubank is what he will do for the rest of his life and he wants to do something big!
He brought in two co-founders early on. Edward Wible who was responsible for building the technical platform and Cristina Junqueira who lately has been CEO of the Brazil subsidiary and Chief Growth Officer. She has now moved her family including four young children to Miami. She will be the CEO of the US subsidiary and get things running over there. A big inspiration of her is how Disney have created such a lovely feeling around their brand and something she want to create around the Nubank brand, which to me is a quite new approach for a bank, but I love it. In order to build brand recognition in the US already now before they launch their first products, which could be 1-2 years away. Nubank announced recently that they are now Official Team Partner with Mercedes F1 and that they now in March became a Main Partner to Inter Miami (the club Messi plays for) and that their stadium changed name to Nu Stadium.
In my eyes, this company is something I want to own for decades. I love their customer obsession, long term focus on building something BIG, David are aligned with creating shareholder value with his big stake in the company and he got voting power to take the decisions he think is right for the long term vision.
I think their main competitive advantage may be how loved they are by their customers. Another thing is that their cost to serve a customer is very low compared to competitors. The cost for any of the big banks in Brazil is around $5 to $6 per active customer per month and for Nubank it is below $1. This should give them more resistance to make it through tough times and the possibility to invest into growing the company.
1st attached picture show how PE is now as low as it ever been since its IPO. I am not saying it offers a lot of margin of safety right now, but my feeling is it starts be in a territory where it starts to get interesting at least. I know they are reinvesting a lot of their money into future growth and I believe their net income could be much higher than what it actually is right now.
2nd attached picture shows that sales growth have come back last quarters to above 40%. Also net income could hit 1b in a couple of quarters so we could have 4b in yearly net income in not so long distant future. With a mkt cap of 70b it at least doesn't look to be that much overvalued any longer.
The big negative net income of -297m in Q4 2022, seen in the 2nd picture, was only an accounting loss, not a real loss of money, rather the opposite. It was actually when David Vélez announced that he gave back his shares, to the company, that he had the right to receive in form of bonus, but he preferred the company to keep it and said he did not want the bonus shares.
It would be very interesting for me to hear what you think about the company, its valuation at the moment and any other thoughts or concerns regarding this company?
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Nubank
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