One of the fastest-growing stocks in fintech isn't a staple of most aggressive growth investors. Nu (NU 2.92%) is barely on the radar of most traders who like to swing for the fences. It's actually one of the smallest weightings for Ark Invest's Cathie Wood, for example.
You don't expect the greatest investor of our time -- one with a bent for value investing -- to be a financial backer of the Brazilian provider of digital financial services. Warren Buffett is certainly an unlikely shareholder, but Berkshire Hathaway (BRK.A -0.34%) (BRK.B -0.01%) initiated a position in Nu last year.
Heading south
It likely wasn't Buffett or Charlie Munger who introduced Nu into Berkshire Hathaway's portfolio of publicly traded companies. They have surrounded themselves with younger money managers to lock in the next generation of Berkshire Hathaway investing legends. The stock itself has also lagged the market since its arrival, but that may not remain the case for long.
Nu came through with one of the more impressive financial updates of this earnings season earlier this week. Revenue soared 85% to $1.6 billion for the first quarter, up a slightly better 87% on a foreign exchange neutral basis. Nu's growth comes from a combination of a 33% increase in customers -- up to 79.1 million by the end of March -- and a 28% surge over the past year in average revenue per account.
A digital banking platform might not seem ubiquitous, particularly in Latin America where traditionalists lean on brick-and-mortar institutions and the wealth gap can be wide between classes. However, Nubank has caught on with the masses in Nu's home turf. A whopping 46% of Brazil's adult population has a Nubank account now, a notable achievement when you consider that it launched just nine years ago.
Image source: Getty Images.
The business is understandably scalable. If you think the top-line growth is impressive, check out how it plays out as you work your way down the income statement. Nu's $650.9 million in gross profit through the first three months of the year is a 124% year-over-year improvement on a constant currency basis. Nu was losing money a year ago, but it has put out three consecutive quarters of positive and growing net income.
Nu has been profitable in Brazil for the past four quarters, and it's still early in its international expansion. It has just 3% of the population penetration in Mexico where it debuted three years ago. It launched in Colombia a year later, and it's reaching just 2% of that country's adult population.
Nu topped 80 million total accounts by early April, but there are plenty of round milestones for Nu to vanquish in the near future. Engagement is also on the rise, as deposits, active accounts, and revenue are all growing faster than the total user base. There are naturally risks for a Latin American financial services play if the region's economy sours, especially as its loan portfolio grows. For now, payment delinquency rates are near historical levels if not better.
This isn't just a story that's impressive just for the sake of growth. Nu has been able to make the most of its growing consumer base to deliver one of the lowest cost structures in the industry. Passing on the savings to its accounts is making it a beloved brand with one of the largest Net Promoter Scores of any company in Brazil. If it can duplicate that success in other Latin American countries the runway here is long and wide.
Going public in late 2021 wasn't great timing for the fintech stock. Growth investors were rocked, and early believers including Berkshire Hathaway saw the stock sink as 2022 played out. The climate is kinder now that Nu is delivering monster growth and growing profitability. The shares are up 50% so far in 2023, but you can still get in at a better price than Buffett. You don't often get a chance to beat the master at his own game.
