Shares of Nu Holdings (NU -0.87%) jumped by 21% in August, according to data provided by S&P Global Market Intelligence. The parent of Brazil-based NuBank reported strong second-quarter results, and it may be expanding into new markets.
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Simplifying the banking experience
Nu is a digital bank operating in Brazil, Mexico, and Colombia. It provides easy-to-use banking services for mass-market consumers, but it recently started expanding its target customer base to include a more affluent clientele as well. It added 4.1 million new customers in the second quarter, bringing its total to 122.7 million, an 18% increase year over year.
As of the end of the second quarter, it had 107 million customers in Brazil, or 60% of the adult population. It surpassed 12 million customers in Mexico, or 13% of the adult population, and it serves 10% of the adult population in Colombia.
Deposits increased 41% year over year, and net interest income increased 33% to $2.1 billion. Loan originations increased 43%, and the credit portfolio was up 40%.
The bank is also doing an incredible job of keeping costs down, and while average revenue per active customer increased 18% over last year to $12.20 in the quarter (on a currency-neutral basis), its cost to serve per active customer dropped to $0.80. That boosted its net income by a robust 42% to $637 million.
Opportunity knocks
Despite its massive presence in Brazil, Nu still has enormous opportunities both at home and abroad. Part of its growth strategy is cross-selling services and deepening engagement, and it has tremendous potential to further monetize its current customer base with new products and services. Beyond that, its presence in both Mexico and Colombia remains relatively small, giving it wide opportunities to expand its footprint in those markets.
Finally, one of the reasons the stock jumped in August was a rumor that it's looking to acquire Argentina-based neobank Brubank. Brubank offers similar services to NuBank and would be a complementary addition to the platform, opening up a fourth market. Argentina also has one of the largest populations in Latin America and is one of its most important economies.
Management has implied that it will eventually look beyond the borders of its current markets, and it has already made investments in other global banks.
"As we think about the next five, 10 years, we are preparing to play in the world -- in the top leagues, in the world class," said CEO David Velez during the Q2 earnings conference call.
Nu stock is cheap right now, trading at 17 times forward, 1-year earnings. That's a great entry point for investors who may have been on the fence about the stock.
