Nobody enjoys stock drawdowns. They can provide buying opportunities for high-quality businesses, sure, but it is never fun to see your personal wealth go down in value. Right now, stocks listed in the United States have entered a slight drawdown, with many faster-growing and higher-volatility names heading into some steep declines.
One stock on my radar is Nu Holdings (NYSE: NU). The financial technology (fintech) company focused on the Latin American market is in a 32% drawdown as of this writing, even after reporting more stellar earnings for the fourth quarter of 2024.
Shares look fairly cheap today, and with a long runway to grow revenue, users, and profits, I think the stock will be setting an all-time high in the not-so-distant future.
The world is moving to digital banking. Eventually — at least for consumer banking — bank branches will be a thing of the past. This is true not just in the United States, but around the world.
Nu Holdings management saw the opportunity in digital and mobile banking when they founded the business over 10 years ago, bringing a mobile banking application to the Brazilian market. Nu Bank is the result.
A fintech platform that is now used by over half of the adult Brazilian population, it has taken the country by storm and upended traditional financial institutions. For a citizen in Brazil, Nu Bank can offer services for all your personal finance needs. This means bank accounts, credit cards, investing, personal loans, and even insurance. With an intuitive modern interface, the platform has grown like gangbusters in Brazil and now has close to 100 million users.
Nu Holdings revenue hit $3 billion last quarter, up 50% year over year. In 2021, revenue was just $636 million in the fourth quarter. Most of this growth is due to the Brazil market, where Nu Bank is now generating close to $10 billion in annual revenue. That is mighty impressive for a company that only entered the Brazilian market 10 years ago.
With over 50% of the adult population using the service, Nu Holdings is approaching user saturation in its home market of Brazil. This does not mean revenue growth will stall out, though. There are two key reasons why Nu Holdings revenue can keep growing at a quick rate.
First, there is plenty of room for revenue to grow from existing Brazilian customers. According to its customer cohort analysis, older Nu Bank users generate an average of $25 in revenue per month, compared to $10 for Nu Bank overall. In simpler terms, the longer you are a customer with Nu Bank, the more revenue you generate for them. Over the next few years, the tens of millions of customers Nu Bank acquired in the last few years should start utilizing the platform more often, which will lead to more consolidated revenue growth.
