Nubank completes 6 months on the stock exchange – Negócios – Estadão E-Investidor – The main financial market news

  • Nubank’s shares began to be traded on the NYSE on December 9, 2021, valued at US$ 9 each – a level that placed the bank as the largest financial institution in Latin America.
  • Contrary to the euphoria of the IPO, the shares lost 50% in six months
  • Now Nubank faces the challenge of showing the market that its customer base can be well profitable

Technological development analyst Gabriel Petrinelli had never invested in stocks until he learned that fintech Nubank was about to become a publicly traded company late last year. The young man is a client of the financial institution and saw an opportunity there to support the company he was already following.

He is just one of more than 7.5 million customers who, in December 2021, embarked on Nubank’s proposal and accepted its ‘little piece‘ in the public offering of shares (IPO) of the company.

It was a BDR (Brazilian Depositary Receipts), the NUBR33 on B3, offered to the bank’s users at no additional cost; one of purple’s many strategies to attract market attention for its debut on the New York Stock Exchange (NYSE).

Between this and other reasons, the marketing worked. Nubank’s shares began to be traded on the NYSE on December 9, 2021, valued at US$ 9 each – a price level sufficient for the bank to be valued at around US$ 41.7 billion, taking the position of larger financial institution in Latin America at that time.

Six months later, the frenzy that hit the market at the time today represents an exaggerated perception of the company’s value, experts point out. “Nubank had a great advantage, which was entering a very competitive market with a very strong and engaged base of millions of customers. The market thought they were on the right track, they just needed to monetize. Despite being a large company, the valuation it was very stretched”, points out Fabio Louzada, economist, CNPI analyst and founder of Eu Me Banco, a school of financial education.

But a few factors at the time contributed to the high expectations. First of all, the movement had some influence from the big investor Warren Buffett, which a few months before the IPO made an investment of US$ 500 million in Nubank. “When Buffett bought stocks, he gave a certain authority and greater trustworthiness to the business. Although many people were suspicious of that market value, people paid for the paper at that price”, says Louzada.

There is yet another factor linked to the macroeconomy: in December 2021, much of the uncertainties seen in recent months did not hover over the market.

Recently, the Federal Reserve accelerated the path of monetary tightening, raising the interest rate of United States to the range of 0.75% to 1%, in an attempt to hold the highest inflation of the last forty years there. The scenario has penalized US stock exchanges, especially the assets of technology and growth companies.

“The main factor in that optimism had to do with a less adverse external scenario. Now, the fintech sector as a whole is suffering from high interest rates”, explains Louzada.

And Nubank did not escape. The shares closed on Friday (3) quoted at US$ 4.50, a 50% devaluation in relation to the fintech’s debut value on the stock exchange six months ago.

The numbers and challenges of the 6 months post-IPO

Some investors, who like Gabriel Petrinelli did not incur any financial costs in acquiring his BDR, may not be in a hurry with the company’s turnaround. He himself confirms: “I don’t regret my ‘little bit’. The devaluation may be temporary and doesn’t change my view much. I continue to like the company,” he says.

Much of the market, however, sees the scenario with more skepticism.

Rodrigo Lima, investment analyst at Stake, explains that, despite showing solid growth in the user base, Nubank has difficulties in turning this into profit. That’s why stocks are so discounted.

“When the IPO took place, the company was rated as the most valuable bank in Latin America. However, after not showing improvements in the profitability of its customers, the company’s shares were extremely penalized, with investors preferring to invest their resources in other more profitable financial institutions”, he says.

The IPO put the bank created in 2013 on the same level as the largest and oldest financial institutions in the country, but without the same profitable capacity. “As Nubank has not yet managed to monetize these customers, the shares come without marginal buyers. They didn’t have the strength to keep going up”, says João Abdouni, CNPI analyst at Inv.

Recently, another point entered the investor’s radar, this time regarding the company’s governance. At the end of April, Nubank sent the Securities and Exchange Commission (CVM) a form in which it stipulated a potential payment of R$ 804.4 million to members of the bank’s executive board for 2022.

About 84% of the amount set aside to remunerate the executive board would only go to the fintech CEO, David Vélez. Payment will only be made upon a specific performance of the shares, as established by the bank. “None of this sounded good in a bank that is making a loss,” says Abdouni.

Nubank’s balance sheet for the first quarter of 2022 showed a 9% reduction in loss compared to the same period last year, in addition to an increase in the customer base.

There was also record revenue, which reached US$ 877.2 million, a jump of 258% compared to the first three months of 2021.

Even so, there is an indicator that continues to turn on a red light in the market: the increase in delinquency.

the scenario of fees on the rise, it makes the offer of credit, one of the main cash-generating activities in the banking sector, more expensive. With the population facing greater difficulties in meeting financial commitments, the risk has increased. “The company would be able to increase the margin per loan, but this could have a high default rate. The market is suspicious of how Nubank will provide credit in a healthy way to a public that, many times, has never had access to credit”, says economist Fabio Louzada.

If it manages to overcome this challenge, as it promises, Nubank should return to the ‘darling’ status it has acquired – and lost – since the IPO. This is a new company, recently listed on the stock exchange and which may still have a lot to show for it, emphasizes Abdouni, from Inv. “There are a number of difficulties for Nubank to be able to justify the valuation from the time of going public and there is still a lot of work to be done. But it is a very young bank, which is already the seventh largest in Brazil by book value,” he says.

Those who believe in the company’s investment thesis in the long term can take advantage of the discounted prices of the shares and acquire another ‘little piece’ of the company. But the bet is only valid for those who, in fact, believe in and follow Nubank’s fundamentals, says Louzada. “Whoever bought shares for a wave is not worth having that asset in the portfolio. But those who bought thinking about the potential to generate cash, to monetize the customer base, in the bank’s management capacity – now is the time to buy. The fundamentals remain in a vision of the future and the Nubank scenario is positive for those who believe in them”, says the expert.

For CEO David Vélez, the results since the IPO are exceeding market expectations. (Photo: Disclosure / Nubank)

“We have a lot of conviction about the future of the company, even if it is a turbulent path”, says Nubank CEO

At the end of May, during the World Economic Forum in Davos, David Vélez reacted to the criticism that Nubank has been receiving from investors and market analysts, defending the company’s long-term vision. “We’ll talk in five years,” said the company’s CEO at the time.

Now, with the company about to complete six months on the New York Stock Exchange, David Vélez spoke with the E-Investor and gave a positive assessment of the period.

In the executive’s view, the main trigger behind the more than 60% drop in shares is the macroeconomic factors that have hit the stock market hard since the company first went public — war in Ukraine, rising inflation and increase in interest rates.

The CEO is confident that Nubank will be able to reverse the negative view of the market and make the customer base profitable through new products.

Check out the full interview:

E-Investidor — The IPO of Nubank was received with great euphoria by the market. Since then, however, the outlook has changed in the face of falls in the value of the share. What is the evaluation of these first six months on the exchange?

David Velez — Since December, many elements that have affected equities are completely out of our control: Ukraine, high inflation in the US, rising interest rates, etc. We have always made it clear to investors that we are a fast-growing company operating in a very volatile region of the world. Our path will not be a straight line.

In what we can control, which is the company’s performance, we excel: not only did our 2021 and Q1 2022 numbers exceed most analyst expectations, but we accelerated our product launch pipeline with important announcements such as a new cryptocurrency platform, a commercial accreditation solution called NuTap, the acquisition of a very strong team of engineers in the US called Parkside, the acceleration of our BNPL solution, NuPay, making us the largest issuer in Mexico.

Our team is performing very well and entering a much more challenging environment with the significant capital we raised in the IPO (US$2.8 billion), which positions us to accelerate through the crisis and come out stronger on the other side.

Is the company able to deliver what it promised in the IPO?

Velez — Yes, and as I said before, our execution and results since the IPO are exceeding all market expectations.

One of the major concerns of investors is the profitability of the company’s customer base. What are the plans to improve these results?

Velez — The monetization of our base is driven by an increasing number of active customers who increasingly use our existing products as well as new products. The results of this strategy can be clearly seen in our financial statements: our RMCA (average revenue per active customer) nearly doubled from US$3.5 in Q1 2021 to US$6.7 in Q1 2022, driving our revenues from US$ 246 million in that period to US$ 877 million in the same period this year.

If we decided to stop growing or slow our growth, we would already be generating significant gains. But we continue to see important opportunities to grow in Brazil and abroad, and we think it’s the best decision to continue investing in profitable growth versus generating a lot of gains at this stage.

In Davos, his statement “we’ll talk in five years” indicated that the outlook for asset recovery is for the long term. What can investors expect until then?

Velez — Since the company’s inception, we’ve told investors that volatility is to be expected: we’re a fast-growing company that started in Brazil, and in our short 9-year history, we’ve already seen the country’s worst recession in 100 years, a contraction of 7 % in GDP in 2017, a presidential impeachment, political corruption scandals and a pandemic. Our path will not be a straight line and will remain volatile.

Therefore, the best way to understand Nu and be an investor in Nu is to be a long-term investor and buy into the thesis that the most valuable financial service providers in Latin America in a few years will be digitally native technology companies. And we are the best positioned in the market to be leaders in this area. Our thesis as a company remains completely intact, regardless of market volatility.

Anyone who bought Nubank shares in December 2021 is scared by the devaluation of assets. What message would you like to leave for these investors?

Velez — If investors believe in the company’s long-term thesis, they can buy its shares and keep them in their pockets for a few years. We are very convinced about the future of the company, even if it is a turbulent path.