One of the fastest-growing names in the fintech space is showing no signs of slowing down. Brazil's Nu Holdings (NU 1.66%) -- the parent company of Latin American digital financial services provider Nubank -- posted its second-quarter results after Tuesday's market close. It was another blowout performance.
There are plenty of quality fintech stocks out there, but most of the stateside leaders are trading near their 52-week lows. Growth has decelerated dramatically at Block (SQ 2.32%), despite the popularity of Cash App. Revenue gains have clocked in with single-digit increases in five of the past six quarters at PayPal (PYPL 2.90%).
The fintech leaders of just a couple of years ago are now trading as laggards. The disruptors are being disrupted. Thankfully for Nu investors, it's still disrupting. The stock is approaching fresh 52-week highs on Wednesday. The stock has now doubled in 2023, a sharp contrast to Block and PayPal, which are somehow trading lower this year despite the generally rallying market. Let's see what makes Nu so special relative to the not-so-"Nu" iconic names in fintech.
Banks a lot
Revenue rose 60% on a currency-adjusted basis to $1.87 billion in Nu's second quarter. It's another period of decelerating growth for the next-gen banker, but that's not the headline here. Analysts were projecting a boost of only 50% on the top line. Its reported profit of $0.05 a share was also better than Wall Street was expecting. Nu has now been profitable for four consecutive quarters, landing well above expectations over the past three reports. It's been a big sequential jump in net income every time.
Scalability is at its best when a platform is growing its user base, monetization, and engagement levels. Nu is checking off all three of those boxes in a big way. There are now 83.7 million customer accounts under Nu's watch, a reasonable 28% increase. Revenue is growing more than twice as fast because activity levels and average revenue per user are breaking Nu's historical records.
Image source: Getty Images.
A whopping 49% of adults in Brazil have a Nubank account. It is now the fourth-largest financial institution in the country based on the number of customers. This is spectacular penetration for a platform that launched just nine years ago.
Nu rolled out in Mexico and Colombia just a couple of years ago. It is a much smaller player outside of its home turf, but it's gaining traction. It's a much smaller base, but accounts are growing faster on a percentage basis in Mexico and particularly Colombia than in Brazil.
The success becomes even more impressive if you zoom out a little bit. Nu's customer base has doubled over the past two years. Revenue has risen more than fivefold in that time. It has achieved ubiquity in Brazil, but the monetization gap is still wide between the revenue it's making and what the brick-and-mortar giants are collecting. This isn't a knock on Nu. It's a window of opportunity.
Nu shares aren't cheap. They trade at a much higher revenue multiple than Block's or PayPal's. Now that Nu has a positive earnings multiple, it's not a surprise that it happens to be a sky-high premium to the market and the industry. However, with explosive growth in the past and a long runway for growth in the future, it's a markup that I believe is worth paying for a market leader in an industry of market laggards. It's shiny. It's Nu.
