Nu Holdings (NU 3.66%) stock lost 19% of its value in February, according to data provided by S&P Global Market Intelligence. The stock dropped after its fourth-quarter earnings report, which demonstrated strong performance but negative sentiment about new growth plans and the economy in Brazil.
Nu is growing rapidly, but not rapidly enough
Nu is an all-digital bank headquartered in Brazil, and it's growing fast. It has been adding millions of customers quarterly, driving revenue growth and profitability at scale.
There was more of that in the fourth quarter. It added 4.5 million customers in the quarter for a total of 114.2 million across its three markets of Brazil, Mexico, and Colombia. Most of those customers are still in Brazil, where it has 58% of the adult population as members and has become the third-largest financial institution despite the historical stronghold of about six large banks.
Of members, 95% are using their accounts monthly, and 61% of monthly active members use Nu as their primary bank account. Nu reached 10 million members in Mexico in the quarter and 2.5 million in Colombia, driven by its high-rate savings account.
NYSE: NU
Key Data Points
Net income increased from $361 million to $553 million year over year, and revenue increased 50% currency-neutral. The average revenue per active user (ARPAC) was up 23%, indicating that despite the huge number of customer add-ons, it's still making more money per user, reinforcing how much customers, both new and old, are engaging with the platform.
However, management is expecting to invest heavily in the business in 2025, expanding beyond its banking roots. It's also anticipating macro headwinds as the economy remains shaky in Brazil. Management mentioned its "3-act story," of which it's already achieved Act 1: developing its banking business. Act 2 is expanding beyond financial services, and Act 3 is becoming a global digital bank. While that could create confidence in the market, it could also create fear about expanding too quickly.
Can you hold for the long term?
This highlights some of the risks in owning young companies. There are going to be some bumps along the way up. However, Nu stock is cheap at the current price, trading at a forward one-year price-to-earnings (P/E) ratio of 13. That's a bargain for a high-growth stock.
If you can stomach risk and hold for the long term, Nu looks like a great buy right now.
