Unpacking Nubank’s IPO filing, when David catches up with Goliath
Nu Holdings, the parent company of the fintech superstar Nubank, is seeking a valuation ranging from $37Bn to $41Bn+ in its IPO on December 2021. Nubank expects to raise more than $2.8Bn+ in this operation. By doing so, it would become one of the most valuable Latin American companies, outperforming legacy banks such as Itau Unibanco in Brazil, which was valued at $38.6Bn+ by the end of October 2021. Even though this valuation may be slipping and sliding until the actual date of this IPO, it should definitely remain huge!
The first 10 pages of its IPO filing give a taste of Nubank’s performance and immediately blow your mind: 48.1M+ users ending September 2021, with 73% of them active each month (!!! — but let’s come back to the definition of active users later), a 90+ NPS, a $5 blended CAC… and the list goes on and on! After going through the 300+ pages, I want to share some takeaways from this filing.
For anyone who had doubts about the tremendous fintech opportunity in Latin America, Nubank’s F-1 filing should be a no-brainer to start looking at the region — and as a fintech investor myself, I’m more bullish than ever!
Nubank’s acquisition metrics in Brazil demonstrate true product-market fit, complemented by an exceptionally low churn rate
Nubank is a great example of product-market fit and the #1 neobank worldwide in terms of users. It reached 48M+ users in September, which is about 2.5x the number of users of Revolut, and almost the number of clients of Itau Banco of 55M globally ending 2019. Nubank estimates that 28% of Brazilians who are aged 15 and above have an account with them.
Nubank’s customer acquisition metrics are striking: it has a $5 blended CAC, with 80–90% of the organic acquisition (split between free referrals and WoM). This means a $20–25 paid CAC — which is still pretty impressive given the competitive landscape! This CAC includes the printing and shipping of cards, credit data cost (mainly credit bureau), as well as paid marketing.
Nubank’s acquisition is cheap, mainly organic, and its churn rate is super low: 0.06% voluntary, and 0.07% involuntary. Seems like a pretty virtuous circle! Quick disclaimer, Nubank defines its churn as “the sum of (a) customers who choose to cancel their accounts with us (voluntary churn) and (b) customers whose accounts are canceled proactively by us (involuntary churn)” , which, for example, wouldn’t take into account inactive people for months with a few dollars remaining on their Nubank account.
A high customer satisfaction — but at a high cost for Nubank
Nubank presents a 90+ NPS, which is stellar in financial services. In Mexico, in 2019 the average NPS in the financial services industry was 32 — Nubank, meanwhile, received a 93 score for its credit card in Q2 2021!
This mind-blowing result could be attributed to many pieces of Nubank’s strategy, but one thing, in particular, caught my attention. While marketing expenses (including teams) represented about 10% of Nubank’s OPEX in 2019, customer support and operations represented about 30% of them — with an important proportion attributed to call centers, according to the filing. Not exactly what I would have expected for a digital bank!
It’s still way lower than legacy banks, as Nubank doesn’t have branches to sustain, and hence has a lower cost to service its users: “We estimate that in Brazil, our cost to serve and general and administrative expense per active customer is approximately 85% lower than those of incumbents, based on their publicly available financial statements”. As a reference, Santander Brazil reported 43,381 employees in its march 2021 earning reports, for a user base similar to Nubank.
Nubank does seem to have reached a high level of efficiency: “in the 3 months ended September 2021, 99% of the calls received were answered in less than 45 seconds”. Impressive, right?
Every fintech (or even app?) would probably dream to have even half of Nubank’s results regarding engagement
On the first page of the filing, the tone is set: among the 48.1M+ users of Nubank, 73% are active each month. I first went crazy on that stat, comparing it with the most successful mobile apps, even mobile social apps. Nubank clearly appeared way ahead in terms of engagement — even in the range of the most successful social networks. For reference, Instagram had about 50% of monthly active users over its total active user base in September 2021.
Taking a step back on how “active users” are defined, it makes more sense: they are “all customers that have generated revenue in the last 30 calendar days, for a given measurement period”. Careful then! Given that credit/debit cards generate revenue even if the user never opens the app, this metric is not directly comparable with other mobile apps. Even while accounting for this note, it remains a really great metric compared to other successful giants in the wallet space worldwide:
On top of their monthly active users (MAU), Nubank’s DAU/MAU (ratio of daily active users / monthly active users) has been increasing from 40.3% to 47.9% from Sept 2020 to September 2021.
Let’s put that into perspective. When taking a look at a US benchmark from A16z, Nubank appears in the range of the most successful social apps: social media apps in the US have an avg. DAU/MAU > 60%, while “money” applications range below 40% regarding this ratio. Again, it’s not “exactly” comparable, as the DAU/MAU ratio of Nubank focuses on the use of its products rather than on the use of its app. Nevertheless, it remains impressive: on average, almost half of Nubank’s active users use one of Nubank’s financial products daily. It makes a lot more sense when you understand that Nubank’s clients are increasingly likely to use Nubank as their primary bank account.
One comment is worth highlighting regarding engagement: on top of its UX, Nubank’s activity rate is “affected by the mix of customers with our credit card product vs. debit card: Our credit card customers have consistently had higher activity rates given the expansionary nature of credit card expenditures”. We don’t have the split per product in Nubank’s filing but would be worth taking a look at.
Nubank’s cohort analysis shows a big potential moving forward regarding monetization — as Nubank’s clients are loyal, and consistently increase their use of the app and Nubank’s financial services
Here is how Nubank monetizes: “We have historically derived a significant portion of our revenue from (i) the interchange fees we collect when a customer uses a Nu credit card to make a purchase and (ii) the interest rates we receive from the financing or revolving of Nu credit card balance by our customers. In the nine months ended September 30, 2021, interchange fees and interest related to credit cards accounted for 30% and 23% of our revenue, respectively (or 32% and 32% in the nine months ended September 30, 2020)”
At a user level, Nubank reports the following metrics between January and September 2021. An average monthly ARPAC of $4.9, an average monthly cost to serve active customers of $0.8, and a total customer balance ending September 2021 of $8.1Bn, which would represent around $168 per customer (without taking cohorts into account).
When you compare Nubank’s revenues per user and assets under management with traditional banks — it becomes clear that there is still a long way to go for Nubank to actually catch up with them.
However, Nubank’s cohorts are more than encouraging on the monetization side.
A few key facts on that:
- Nubank has become the primary bank account for over 50% of its active customers who have been active with them for more than 12 months. That’s the holy grail of almost every fintech! And the most recent cohorts show a decrease to less than 7 months before becoming the primary account.
- Nubank has been cross-selling its products at a faster pace: “our January 2021 customer cohort took approximately three months to reach an average of 3.5 products per active customer, compared to over 12 months for the January 2020 customer cohort.”
So when you add increasing revenues per user, high customer engagement, and low churn, it seems that Nubank is on the right track to increase its profitability!
The following graph “shows the growth in total revenue generated by a customer cohort in the last twelve months, or “LTM,” ending September 30, 2021, compared to the revenue generated in that cohort’s initial year”. It is impressive how quickly Nubank manages to scale the revenue generated by its users, with the 2020 Cohort having already increased by +4x its amount of revenue generated:
Watch out Mexico, Nubank is coming hard!
Nubank announced that, as of the end of Q3 2021, it already has +762,000 clients in Mexico with 70% of customers acquired through word-of-mouth referrals. This number also came as a surprise — I must admit we haven’t seen so many Brazilian Fintechs expanding successfully to Mexico, and growing faster than many of the Mexican local startups!
It seems the competition is fierce with the local Mexican wallets on the market:
- Klar announced in July 2021 that it had opened 700,000 accounts to date since its launch in 2019
- Albo announced ending 2020 having “near half a million customers across Mexico”
- In November 2021, Fondeadora had more than 1M+ downloads on the Play Store
Nubank also announced a $135M investment in Mexico in March 2020. Additionally, it will soon be able to launch a debit card and capture deposits in Mexico, following up its acquisition of Akala, which grants Nubank a SOFIPO license: “On December 18, 2020, we submitted a change of control request with respect to Akala to the CNBV, and in September 2021, the acquisition closed.”
Following up Uala’s acquisition of ABC Capital, and Revolut’s announcement of its upcoming launch in Mexico, the game is on!
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Here are some other interesting data points:
- Marketing expenses represents less than 10% of Nubank’s operating expenses in 2020
- 44.4% of Nu’s employees are women — sí, se puede! 🎇
- In Brazil, due to the high volumes processed through Nubank, the company has to comply with more regulations than its smaller competitors. Nubank’s market share is crazy: in Brazil, their share of the payment volume market stood at 5.9% in 2020, up from 3.6% in 2019, according to data from ABECS.
- Nubank’s credit card delinquency rate in September 2021 was 3.3%, 31% lower than the industry average of 4.8% in Brazil. As a reference, Santander Brazil reported an NPL of 4.42% between March 2020 and March 2021.
Can’t wait to buy some of Nubank’s shares through another amazing fintech app (#proudinvestor) Flink!
