Please ensure Javascript is enabled for purposes of website accessibility

5 Important Numbers From the Next Buffett-Backed IPO

By Bram Berkowitz – Nov 5, 2021 at 10:52AM

Key Points

  • Nubank is a Brazilian digital bank that has more than 48 million customers in Latin America.
  • The bank is seeking to raise $3 billion in an IPO that values the company as high as $50 billion.
  • Through the first nine months of this year, Nubank generated $1.06 billion of revenue and reported a loss of roughly $99 million.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Warren Buffett and Berkshire Hathaway invested in the Brazilian digital bank Nubank earlier this year. Now, it's gearing up to go public.

Backed by Warren Buffett and Berkshire Hathaway (BRK.A 0.01%) (BRK.B -0.57%), Nu Holdings, the parent company of Nubank, is planning to list on the New York Stock Exchange in an initial public offering (IPO) sometime before the end of the year that will seek to raise more than $3 billion. That 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 U.S. this year. Nubank is looking for investors to assign it a valuation as high as $50 billion. It will trade under the ticker symbol NU.

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

Warren Buffett

Warren Buffett. Image source: Motley Fool.

1. 48.1 million

This is the number of customers that do business with Nubank, a massive total. That overall figure includes 47 million retail customers, to whom Nubank provides debit and credit cards, depository accounts, mobile payment services, personal loans, and online investing capabilities. These customers are mostly in Brazil and Mexico, but also in Colombia, Chile, Peru, and Argentina.

Nubank also has 1.1 million small- and medium-size business customers, which is roughly the same amount of business banking clients as U.S. Bancorp, the fifth-largest U.S. bank (by assets). Nubank does not appear to offer any business lending products, so this could be a good area for it to expand in future years. It views the Latin American market and its 650 million people to be valued at $1 trillion this year.

2. 90 and 94

Nubank received a net promoter score (NPS) of 90 in Brazil and 94 in Mexico. The NPS measures how likely a customer is to recommend the company to others. It is a quantitative look at how good a company's customer service is and how much customers like the company. These NPS scores are remarkable when you consider that the average NPS at U.S. banks is about 35 and that even really good fintech companies in the U.S. only get up into the 70s and 80s.

However, there are a few things to keep in mind. The 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 that it has given more than 5 million people their first-ever credit card or bank account, so the NPS numbers might be a little inflated in the grand scheme of things. But they ultimately show how much happier 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 comes out to an average account balance per customer of roughly $166. That does seem very small, but keep in mind that the average gross domestic product per capita in Latin America and the Caribbean hasn't exceeded $10,500 in recent years, according to The World Bank. In the U.S., it's been over $60,000 since 2017.

4. $1.06 billion

This is the amount of revenue generated by Nubank through the first nine months of 2021, up nearly double from the same time period in 2020. Of this amount, more than $600 million is from interest made on credit card balances and personal loans, as well as investing cash into government bonds. The remaining $400 million or so is largely from interchange fees from credit and debit card purchases, but also from subscription revenue from the bank's loyalty program, late fees, and commissions from other services and products such as the brokerage platform and insurance.

Revenue has a decent split between interest and fee income, although both lending and interchange fees are highly correlated to economic activity. Hopefully, the bank can continue to grow fee income from the brokerage and insurance businesses, as well as other new products in the future.

There is certainly a ton of potential to grow revenue. Nubank said in its prospectus that average revenue per active customer (ARPAC) in September was less than $5. For customers who use credit cards and personal loans, monthly ARPAC ranged from $23 to $34. More traditional banks in Brazil have an ARPAC that is 10 times that amount, according to Nubank. While it is unlikely to get this high due to the fact that it will never charge the same exorbitant fees as those banks, the company believes it can "meaningfully" increase ARPAC by cross-selling more products and winning more wallet share among existing customers.

5. $99 million

This is the loss Nubank has generated through the first nine months of 2021, which is up from the $64 million loss Nubank generated during the same time period of 2020. However, considering Nubank lost more than $171 million in all of 2020, it would appear the company is going to turn in a smaller loss this year unless there is some sort of seasonality component in the fourth quarter. Nubank expects to continue to see losses in the near term as it continues to invest back in the business and acquire more customers, which is not uncommon for a high-flying young fintech.

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

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.