Nu Holdings IPO Forecast: Will Buffett Be Lucky This Time With Nubank?

Mohit Oberoi, CFA - Author

Dec. 1 2021, Published 8:32 a.m. ET

Brazilian fintech company Nu Holdings, which is the parent company for Nubank, has lowered the IPO price. The company is backed by Berkshire Hathaway, which is chaired by legendary investor Warren Buffett. What’s the forecast for Nu stock and will it be a good IPO to buy?

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Paytm, the Indian fintech startup backed by Berkshire Hathaway, went public in November. The IPO flopped and investors lost millions of dollars on listing day. StoneCo, another Brazilian fintech startup that counts Berkshire as an investor, has fallen over 80 percent this year.

Nu Holdings lowered the IPO price range before the IPO in December.

Nu Holdings is expected to start trading later in December. However, the company has lowered the IPO price range to $8–$9. Previously, the company kept the IPO price range between $10 and $11.

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Leading funds like Morgan Stanley, Tiger Global Management, SoftBank Latin America Funds, and TCV are expected to be anchor investors in the IPO and invest a collective $1.3 billion in the company.

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As part of the IPO, Nu Holdings plans to sell around 289.2 million shares. The shares would rise to 317.7 million if the underwriters exercise the over allotment option. The company could raise over $2.6 billion from the IPO at the midpoint if the underwriters exercise the overallotment option.

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Nu Holdings intends to use the money for general corporate purposes. It might also look at acquisitions but at this point, it doesn't have any agreements for an acquisition.

Nu Holdings is valued at over $40 billion.

At the top end of the IPO price range, Nu Holdings would be valued at $41.5 billion. While it's lower than the around $50 billion valuation that the company was previously seeking, it's higher than the market cap of Itau Unibanco Holding SA, which is the largest private sector bank in Brazil.

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Markets have a different valuation yardstick for fintech companies. While the IPO of Chinese fintech giant Ant Financial was blocked by Chinese regulators, the company was set to have a market cap above that of JPMorgan Chase—the largest U.S. bank.

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Nu Holdings stock appears somewhat overvalued.

Along with the absolute valuations, we also need to look at relative valuations. Nu Holdings reported revenues of $737.1 million in 2020 and $612.1 million in 2019. While its growth stalled in 2020 due to the COVID-19 pandemic, it's back on the growth track again.

In the first nine months of 2021, Nu Holdings' revenues almost doubled YoY to $1.06 billion. However, like most other fintech companies, Nu Holdings is also posting losses and in 2020 its net losses were $193.2 million. In the first nine months of 2021, Nu Holdings has posted a net loss of $81.7 million, which is slightly higher than in the corresponding period last year.

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Looking at the IPO price range, we get a 2020 price-to-sales multiple of just above 56x. The valuations seem stretched at these price levels.

Nu Holdings was valued at $30 billion after the June 2021 funding round, which was led by Berkshire Hathaway. In the IPO, Nu Holdings is seeking a valuation 38 percent higher than its most recent private market valuation. Looking at the recent weakness in U.S. stock markets and the expected rate hikes, Nu Holdings' IPO looks somewhat overpriced at these prices.


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