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Why Nubank’s stellar 2023 performance heralds optimism for Monzo et al

IPOs may be a while off for European neobanks but the business case is becoming increasingly compelling, writes AltFi's Daniel Lanyon

David Vélez/Nubank

David Vélez/Nubank

Digital assets - or crypto as it used to be known - being the standout performing asset class in 2023 tells two distinct stories. 

For bulls, it shows that global concerns about persistent inflation and the fallout from the Russian invasion of Ukraine and its associated geopolitical risks may be softening. 

For bears, it shows that the return to a risk on attitude from investors is largely speculative, perhaps best demonstrated by the likes of Michael Burry’s $1.6bn bet against the stock market (a pretty big short indeed).

Both the S&P 500 and the Nasdaq have performed strongly this year, up 16 per cent and 38 per cent, respectively. 

Amid the stock market noise, however, Brazilian digital banking darling Nubank’s latest numbers tell us the fintech trend is alive and well and based on strong fundamentals rather than speculative bluster. 

Nubank, led by co-founder and CEO David Vélez and which counts Warren Buffet among its largest investors, is still some way off its stellar valuation at the time of its initial public offering at the peak of the fintech valuation bubble in December 2021.

Its share price is still down nearly 40 per cent from its IPO price of $9 but a pattern of consistently beating earnings forecasts has meant a 98.6 per cent rally in 2023 so far.

Nubank's second quarter earnings, which came out last week, show the bank is adding c.4.6 million customers per quarter, an incredible rate of growth. 


More crucially, however, is the ability it is demonstrating to cross-sell products to its swelling customer base and thereby further monetise each one further through its ability to ship products. 

The monthly average revenue per active customer hit $9.3 in Q2, its highest-ever level and representing an 18 per cent year-on-year upswing.

“The compound effect resulting from the expansion of the customer base and heightened engagement, coupled with the advancing in cross-selling and upselling capabilities, has enabled the company to achieve yet another quarter of strong revenue growth, which underscores its ability to effectively monetize its expanding customer base,” Nubank said in its Q2 report.

For Europe’s neobanks, particularly the likes of Bunq, Monzo and Starling, the performance of Nubank is hugely optimistic as they gear up to debut as public companies in the coming year or two. 

For at least the past three years or so, insiders have hinted that an IPO for these digital banks, was around 'just around the corner' but the pandemic and the more recent weakness in financial markets - knocked and continues to knock valuations for fintech companies. 

This makes the prospect of stock market success lower and therefore keeps putting paid to the ever-elusive move into the public markets realm. 

But the success of Nubank is far from just a LatAm story of serving the un-or-underbanked. 

Yes, this plays a large part in Nubank’s swelling balance sheet. It is not the only key though. 

Nubank, like Monzo and Starling benefits from the ability to continually launch new products while growing quickly. 

This growth too does not come at higher marginal cost. 

Nubank is managing to expand - in successive quarters - how much each of its customers is worth to the business while also keeping a lid on average costs. 

Its monthly average cost for each active customer has remained virtually unchanged at just $0.8. This means its efficiency ratio measured against its operating leverage now stands at 35.4 per cent.

Starling's cost-to-income ratio while still higher at 50.7 per cent, according to the bank's latest report, is trending down rapidly from 77.3 per cent a year earlier.

While Europe's neobanks are still a way off from the stellar performance of Nubank, and operating in markets distinctly different from the LatAm stock market star, the digital banking model may well be one that will excite public market investors...when they eventually debut.

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