RIO DE JANEIRO, BRAZIL – The topic of the day is, of course, Nubank’s claimed valuation of US$75 billion to US$100 billion for its Nasdaq debut, expected by the end of 2021. In practice, if the cap is reached, the digital bank would be the largest listed Brazilian and probably also Latin American company by market value.
It would probably be bigger than Vale, Petrobras, and any other national and continental giant the reader can think of, possibly including the most talked-about success story of Latin America, Mercado Libre, that is worth US$91 billion as of today.
What does this mean? The first answer that comes to mind for the valuation gurus Exame newspaper spoke with is a plan and business strategy that is still unknown to the public. It is not clear to anyone how this value can be possible with what is known so far about Nubank, its numbers, and its plans.
The anchor for finding this potential valuation would be, first and foremost, Nubank’s illustrious shareholder base. From venture capital to traditional value investing, the cream of global investors are represented there: Sequoia Capital, Tiger Capital, Tencent, and more recently Berkshire Hathaway, the international oracle Warren Buffett, to name a few. Of the Brazilians, the national oracle is Luis Sthulberger of Verde Asset Management and Absoluto.
The reason for these designations is that it would be counterintuitive to believe that they are all wrong. Not this team. Not after pre-investment due diligence. Still, it’s even harder to explain the numbers now.
The second significance of the valuation Nubank is seeking, according to pipeline information from sources connected to the IPO, is that if Nubank succeeds with its plans, it will “revalue” fintechs and digital banks.
“If Nubank gets the value it wants in the market, it means that the valuation of Inter, BTG Digital, and Banco Pan is at least wrong, which means they should be worth much more,” commented one asset manager.
For this reason, there is a mix of curiosity and excitement among competitors. Everyone is waiting to see the transaction’s prospectus and hear the offer’s roadshow to understand the value path that Nubank intends to create.
Nubank posted a net profit of R$6.8 (US$1.2) million in the first quarter of this year. According to the financial statements submitted to the Central Bank, the second quarter of 2020 saw a positive net result of almost R$25 million, but with a cumulative annual loss of more than R$230 million. Net operating income was still negative at R$3.7 million in the first three months of the year.
Although the bank’s plans are still somewhat secretive, the market is impressed by the bank’s revenue growth, even though the number of active customers is much lower than the total number of customers. In May, the institution had about 40 million registered customers. However, the Brazilian Central Bank estimates the number at just over 10 million actual active users.
Net revenues in 2020 were R$4.8 billion and R$1.8 billion in the first quarter of this year. On an annual basis, the first three months of 2021 would amount to R$7.2 billion. Nubank is not expected to make a profit on revenue of this magnitude, simply because it doesn’t want to do so. Rather, its focus is still on growth, which means spending on more customers, more platforms, more products, and services. But it has a solid base to work with.
Even before it debuts on Nasdaq, the Brazilian bank is a case study at Stanford for those who study the fintech market. Is the digital bank a sort of new Mercado Libre? Competent, customer-centric management in a way the industry has never seen? “Meli,” as Mercado Libre is called, is worth over US$90 billion.
That Nubank is big and will be strong, there is no doubt. But after Buffett valued the company at US$30 billion in May, its market value could more than triple in a few months.