Nubank IPO: The largest neobank hits the stock market - The Average Joe

    Nubank IPO: The largest neobank hits the stock market

    Victor Lei — Head of Research

    December 8, 2021

    nubank

    December 8, 2021

    … And it requires no tellers. Neobanks — a fintech buzzword for “digital financial services” — are recently exploding in popularity. Today, Nubank — the industry’s poster child — is going public.

    Say goodbye to physical banks

    Neobanks are disrupting traditional banking with more accessible and cheaper products — made possible by their lack of physical locations. And Latin America is their perfect breeding ground — where financial services are expensive and unavailable to most people.

    • In 2018, 70% of Latin Americans didn’t have a bank account.
    • During COVID, over 100M people (15% of all Latin Americans) opened bank accounts for the first time — with the help from fintechs.

    Nubank — backed by legendary investor, Warren Buffett — is Latin America’s largest neobank, providing online banking and credit cards.

    Sales (and losses) took off during COVID — with over 48M customers. For the first 9 months of 2021, Nubank reported:

    • $1.06B in sales — up 99% from the same period in 2020.
    • $99M in net loss — up 54% from the same period in 2020.

    Can Nubank maintain the momentum?

    Thanks to COVID, Nubank acquired customers for dirt cheap.

    • Traditional banks have been known to pay an average $300 to acquire a banking customer.
    • But according to Nubank, it’s acquiring customers for $5 — with 80-90% of customers coming from organic word-of-mouth marketing.

    But the real challenge comes post-COVID — maintaining momentum and reaching profitability. Despite a large portion of Latin Americans remaining unbanked — it’ll be difficult maintaining Nubank’s impressive 99% growth post-COVID.

    Industry TLDR: A big concern for neobanks is whether they can reach profitability in a highly competitive industry — where companies are luring customers away from banks with free services and better rates.

    Investors: What a time to go public

    Nubank’s IPO comes at a precarious time for fintech companies and tech IPOs — both performing poorly in recent weeks.

    • Of 55 tech companies that went public in 2022 — 20 have fallen over 50% from their peak (via CNBC).
    • Rivian (NASDAQ:RIVN) soared over 70% in its first week before losing most of its gains in the following weeks.

    Nubank lowered its expected IPO valuation to ~$41.5B — down from ~$50B — which isn’t the best sign for a company about to go public.

    Diver deeper: Latin American companies make their way to the US stock markets.

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