5 big numbers from the upcoming Buffett-backed IPO

Bsupported by Warren Buffett and Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), Nu Holdings, the parent company of Nubank, plans to list on the New York Stock Exchange in an initial public offering (IPO) before the end of the year that will seek to raise more than $ 3 billion. This not only makes the Brazilian digital bank one of the largest publicly traded companies in Latin America, but also the third largest IPO in the United States this year. Nubank is looking for investors to give it a valuation of up to $ 50 billion. It will trade under the ticker symbol NU.

Here are five important numbers to know about the upcoming Buffett-backed IPO.

Warren Buffett. Image source: Motley Fool.

1. 48.1 million

That’s the number of clients who do business with Nubank, a huge total. This aggregate figure includes 47 million retail customers, to whom Nubank provides debit and credit cards, deposit accounts, mobile payment services, personal loans and online investing capabilities. These customers are mainly located in Brazil and Mexico, but also in Colombia, Chile, Peru and Argentina.

Nubank also has 1.1 million small and medium-sized business customers, which is roughly the same number of merchant banking customers as US Bancorp, the fifth-largest American bank (in assets). Nubank does not appear to offer any business loan products, so this could be a good area to grow in the years to come. He considers that the Latin American market and its 650 million inhabitants are valued at 1,000 billion dollars this year.

2.90 and 94

Nubank achieved a Net Promoter Score (NPS) of 90 in Brazil and 94 in Mexico. The NPS measures the likelihood that a customer will recommend the company to others. It is a quantitative examination of the quality of a company’s customer service and customer appreciation of the company. These NPS scores are remarkable when you consider that the average NPS of US banks is around 35, and even very good fintech companies in the US don’t appear until the 70s and 80s.

However, there are a few things to keep in mind. Other big banks in Brazil charge incredibly high fees and can make it very difficult to sign up for basic banking services. Additionally, Nubank believes it gave over 5 million people their very first credit card or their very first bank account, so the NPS numbers could be a bit inflated in the grand scheme of things. But they ultimately show how much more satisfied customers are with Nubank compared to traditional banking services in Latin America.

3. 166 $

With 48.1 million customers and $ 8.1 billion in deposits, that only works out to an average account balance per customer of around $ 166. It sounds very low, but keep in mind that the average gross domestic product per capita in Latin America and the Caribbean has not exceeded $ 10,500 in recent years, according to the World Bank. In the United States, it has exceeded $ 60,000 since 2017.

4.106 billion dollars

This is the amount of income generated by Nubank in the first nine months of 2021, almost double the same period in 2020. Of this amount, more than $ 600 million comes from interest paid on balances credit cards and personal loans, as well as investing money in government bonds. The remaining $ 400 million comes largely from interchange fees for credit and debit card purchases, but also from subscription revenue from the bank’s loyalty program, late fees, and commissions from others. services and products such as brokerage platform and insurance.

Income has a decent split between interest and fees, although loan and interchange fees are strongly correlated with economic activity. Hopefully the bank can continue to increase commission income from brokerage and insurance business, as well as other new products in the future.

There is definitely a ton of potential to increase income. Nubank said in its prospectus that the average income per active customer (ARPAC) in September was less than $ 5. For customers who use credit cards and personal loans, the monthly ARPAC ranged from $ 23 to $ 34. More traditional banks in Brazil have 10 times the ARPAC, according to Nubank. While it’s unlikely to be that high due to the fact that it will never charge the same exorbitant fees as these banks, the company believes it can increase ARPAC “significantly” by selling more products. and by gaining more portfolio shares among existing clients.

5. 99 million dollars

This is the loss that Nubank generated in the first nine months of 2021, up from the loss of $ 64 million generated by Nubank in the same period of 2020. However, given that Nubank lost over $ 171 million in 2020, it looks like the company is going to record a smaller loss this year, unless there is some sort of seasonal component in the fourth quarter. Nubank expects to continue to incur short-term losses as it continues to invest in the business and acquire more clients, which is not uncommon for a young, high-flying fintech.

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Bram Berkowitz has no position in the mentioned stocks. The Motley Fool owns shares and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: $ 200 long calls in January 2023 on Berkshire Hathaway (B shares), $ 200 short buys in January 2023 on Berkshire Hathaway (B shares), and $ 265 short calls in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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