Why Nu Holdings’ share price fell 36.6% in May

What happened

Nu Holdings (NAKED 4.54%) had a tough month, with its stock price falling 36.6% in May, according to S&P Global Market Intelligence.

The Brazil-based digital bank was way behind the pace of the S&P500which was essentially flat in May, up 0.2%, and the Nasdaq Compound, which fell 1.9% last month. Nu’s share price is down about 52% year-to-date, trading at around $4 per share.

Image source: Getty Images.

So what

Nu Holdings is the holding company of Nubank, a Brazil-based digital bank serving that country, as well as Mexico and Colombia. It is considered one of the largest digital banks in the world, with some 60 million customers.

The company went public last December at around $11 per share and has been on a downward trend ever since. The timing was not ideal, especially for fintechs, as the Nasdaq Composite has fallen more than 20% since the start of the year. Inflation, rising interest rates, geopolitical risks and the economic slowdown all played a role.

The bank released its first quarter results on May 16 and the stock fell below $4 per share in the following days. The bank posted a net loss of $45 million, but that was down from $54 million in the previous quarter.

Additionally, its growth numbers have been solid. The bank added 5.7 million customers year-over-year, increased deposits 94% and generated record revenue of $877 million, up 228% year-over-year ‘other, exceeding analysts’ estimates. Nu Holdings also increased its revenue per customer by 67%, reduced its average cost to serve customers by 30%, and maintained its low customer acquisition costs.

Now what

The growth numbers are impressive and they caught the attention of Warren Buffett, CEO of Berkshire Hathaway, who is an investor in the company. Nubank’s competitive advantage over traditional banks in its markets lies in its low fees, which it can offer due to its relatively low overhead. It also offers easier access to banking services through its mobile application. Banks in the region generally have higher fees and more complex rules and bureaucracy to deal with.

Nubank has gained market share in its markets, but it is only scratching the surface of the markets it currently serves, not to mention the potential for massive expansion throughout Latin America. This is a stock to watch.

Karen J. Nelson