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Brazil-based Nu Holdings (NU) has taken the market by storm, carving out a compelling niche in the fintech space. After a challenging start following its 2021 IPO, Nu has roared back, delivering extraordinary returns. Driven by its bold mission to revolutionize financial services in Latin America, its approach has captivated both consumers and investors.
What’s even more fascinating is the star-studded roster of investors backing the stock. Warren Buffett, the legendary value investor and CEO of Berkshire Hathaway (BRK.A) (BRK.B), has been a believer in Nu since its IPO, holding over 100 million shares at its peak. On the other end of the spectrum is Cathie Wood of Ark Invest, whose bold, high-risk style couldn’t be more different from Buffett’s conservative approach. Yet, their shared confidence in Nu highlights the stock’s rare ability to bridge vastly different investing philosophies.
But the narrative took an unexpected turn this year. For the first time ever, Warren Buffett’s Berkshire Hathaway hit the brakes on its Nu Holdings. The third quarter of 2024 revealed that the investing giant sold 20.7 million NU shares, which is nearly 19% of its stake in the fintech company. This move brought Berkshire’s total holdings down to 86.4 million shares, representing just 0.36% of Berkshire’s equity portfolio. This shift, combined with Israel Englander of Millennium Management selling almost his entire position on NU, has raised eyebrows across the investment world.
While Buffett’s partial exit has already dampened NU’s momentum, Citi analysts’ recent skeptical outlook following the company’s Q3 earnings report is adding to the uncertainty.
Once a high-flyer in the fintech space, NU is now facing a shift in sentiment as billionaire fund managers and analysts are turning their back on this stock. But what’s behind this sudden change of heart? Let’s take a closer look.
About Nu Holdings Stock
Valued at $57.4 billion by market capitalization, Nu Holdings is one of the world’s largest and most innovative digital financial services platforms, serving almost 110 million customers across Brazil, Mexico, and Colombia. Nu is reshaping the industry by leveraging cutting-edge data and proprietary technology to offer products that prioritize transparency, responsible lending, and financial inclusion.
Even after factoring in a notable 27.7% pullback from its November high of $16.15, shares of this Warren Buffett stock are up 47% over the past year and 44% on a year-to-date basis, outshining the broader S&P 500 Index’s ($SPX) 33% annual returns and 28.5% YTD gains.
From a valuation perspective, Nu Holdings’ stock is hardly a bargain anymore, which may explain why Warren Buffett is suddenly trimming his position. Priced at 29.27 times earnings and 7.12 times sales, the stock is trading well above its sector medians of 14.96x and 3.34x, respectively. This steep premium could be a key factor in Buffett reassessing his investment, as it no longer aligns with his value-focused philosophy.
Nu Holdings Slides After Q3 Earnings
Nu Holdings dropped Q3 earnings results on Nov. 13, which blew past Wall Street’s top- and bottom-line expectations. Total revenue for the quarter increased 37.7% year over year to $2.9 billion, while EPS of approximately $0.11 showed a remarkable 81.4% annual jump. Moreover, the company demonstrated solid growth across key metrics, with monthly average revenue per active customer (ARPAC) climbing 25% year-over-year, signaling strong consumer engagement.
Net interest income (NII) surged 63% annually, although there were signs of pressure on the net interest margin (NIM), which narrowed both sequentially and year-over-year. During the quarter, the company also made impressive strides in customer growth, adding 5.2 million new members, bringing its global total to 109.7 million. Brazil remained a powerhouse, with its customer base reaching 98.8 million by Sept. 30, while in Mexico, Nu’s expansion remained solid, adding 1.2 million new customers in the quarter, pushing the total to 8.9 million.
Yet, despite Nu’s impressive performance in its latest earnings report, shares of the company fell more than 2% on Nov. 14 amid growing concerns about Brazil’s macroeconomic outlook. While inflation is cooling in the U.S. and the Federal Reserve is easing interest rates, Brazil remains entrenched in high inflation.
This persistent economic pressure, compounded by rising interest rates, raises concerns about how these factors will impact Nu's business. As a financial institution in Brazil, Nu could face challenges in the near term, with higher rates potentially weighing on its profitability and growth. Meanwhile, analysts tracking Nu Holdings expect the company’s bottom line to increase a notable 70.8% year over year to $0.41 per share in fiscal 2024 and grow another 46.3% to $0.60 per share in fiscal 2025.
What Do Analysts Expect for This Warren Buffett Stock?
Shares of Nu fell 4.2% on Dec. 2 after Citi analysts raised concerns about the company, downgrading the fintech giant from “Neutral” to “Sell” due to mounting challenges in its growth trajectory following its aggressive expansion. Analyst Gustavo Schroden pointed out a few unsettling trends in the company’s Q3 earnings report, including a sequential dip in ARPAC and higher funding costs, alongside a quarterly decline in NII, particularly from credit card operations.
The analyst also highlighted a sequential 90-basis-point drop in risk-adjusted NIM, which led to nearly stagnant pre-tax earnings after an impressive nine consecutive quarters of growth. While Nu has been expanding its product offerings, including payroll loans in Brazil, Mexico, and Colombia, Schroden believes these alternative revenue sources won’t be able to offset the slowdown in its core business of credit cards and personal loans in Brazil anytime soon.
Nevertheless, Wall Street still remains optimistic about NU stock, with a consensus “Moderate Buy” rating overall. Of the 13 analysts offering recommendations, seven advise a “Strong Buy,” five give a “Hold,” and the remaining one suggests a “Strong Sell.”
The average analyst price target of $16.45 indicates 37% potential upside from the current price levels, while the Street-high price target of $19 suggests that NU could rally as much as 58.3% from here.
