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Hey team, Jenny here.

I missed you! Please forgive my absence - it has not been for a lack of longing for your fintech fam companionship nor stuff going down in Latam fintech. Speaking of which, I will waste no time jumping in. On October 27, Nubank filed to go public with the street whispering about a $50B target valuation. Yes, “the Nubank”. Well, since May 2021 it is technically Nu (so fancy, so fresh, so fun).

Anyways, on November 1, it filed its F-1 (not the racing version of F1) with the American Securities and Exchange Commission (SEC). For those new to IPO docs, a S-1 is for domestic companies and a F-1 is for foreign companies. An F-1 includes more information about the issuer’s country and how the securities will be treated (think tax, legal, etc.). Fortunately, Nu is no stranger to combating bureaucracy - after all, its mission is to “fight complexity to empower people in their daily lives.” What that means for us is a 500+ page document of sheer Nu goodness that, TBH, I was positively giddy to drive into. Below is my teardown.

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Background

Y’all have definitely heard me and Julie talk about Nu, but we will go over the background one more time for the people in the back. Nu was started in 2013 by David Velez, a Colombian and former-VC. Along with Cristina Junqueira and Ed Wible, it launched in Brazil with a simple value prop: a fee-free purple credit card with a R$50 (~$10) credit line. It aimed to serve the 50%+ of Latin Americans that are unbanked or underbanked, and the many more who are simply fed up with the existing banking system with terrible customer experience (nothing digital, long lines, unfriendly branches) and high fees and interest rates (highest in the world).

Since then, Nu has continued to rocketship itself into the largest digital bank in the world. As of September, it had 48.1M users, adding 2.1M new customers a month. This includes ~28% of the Brazilian population 15 years old and above. On top of that, a whopping 80-90% of users come to Nubank organically, and it is the first credit card or bank account for 5.1M+ users and 1M+ SMEs. It estimates that it has saved its customers $4.8B in bank fees (Brazilian banks have some of the highest fees in the world) and 113M in wait time. Nu has maintained a NPS score of 90 in Brazil and 94 in Mexico, and 73% of users are active on a monthly basis. Today, it operates in Brazil, Mexico, and Colombia, which account for ~60% of the region's population and largest unbanked populations with the lowest credit access and highest interest rates.

The company has raised $2.3B in capital from investors like Sequoia, Tenant, Ribbit, Kaszek, QED, and most recently (in June) Berkshire Hathaway. I’m just waiting for a meme of Buffet in Carnival attire. That just me? BTW, if you are still not convinced by the opportunity for fintech disruption in Latin America, check out pages 7-10 of the F-1. Do it and tweet me your takeaway.

Product

While Nu started with a humble fee-free credit card, it has since developed into a financial behemoth, offering what it refers to as “five financial seasons. See graphic below.

Its products include:

1. Spending with Nu’s credit and debit cards, QR code-based and PIX instant payment arrangements, WhatsApp Pay and traditional wire transfers
2. Saving with the Nu personal and business accounts
3. Investing with Nu’s direct-to-consumer NuInvest digital investment platform
4. Borrowing with Nu’s transparent, easy-to-manage credit cards and personal loans with limits that grow over time as users build their credit histories with them
5. Protecting with its insurance solutions

Nu has also added other products and services through partnerships, such as mobile phone top-ups, foreign remittances and secured loan products—all under the Nu brand and with the same customer experience as its proprietary products.

Astounding Metrics

I could go into more detail on Nu’s products, but I simply can’t get over its unit economics. Yes, these are likely a glossy, generous “public ready” version of them but still, these numbers are something. As of September 2021, it cites its CAC as $5/customer and its monthly average revenue / active customer (ARPAC) as $4.90. For customers more active across its core products, the monthly ARPAC is closer to $23-34. It also says that it thinks incumbent banks in Brazil have a ARPAC 10x higher. While these are far higher margins for incumbents, Nu is not doing poorly with a LTV to CAC over 30x.

Beyond the core revenue, its unit economics are buoyed by lower delinquency rates, epicly low churn, and hyper engagement. The F-1 states that Nu “had a 90-day credit card delinquency rate of 3.3% as of September 30, 2021, which is approximately 31% lower than the industry average of 4.8%, according to a report issued by the Central Bank of Brazil.” Also, just like Hotel California, no one ever leaves. Its average monthly churn on a voluntary basis is 0.06% and on an involuntary basis is 0.07%.

All of this is fueled by its clients “social network-level engagement.” The frequency of engagement is staggering and has continued to grow, last shown in September around 48% of MAUs engaging on a daily basis. This level of engagement drives massive amounts of data that it then uses to improve underwriting and products.

Financials

Turning to financials, it’s still generating losses but I almost don’t care because I’m still lost in the heavenly cloud of its unit economics. To me, these losses mean just one thing: growth. YTD 2021, Nu generated $1.062B in revenue with $506M in gross profit (~50%) with $81M of bottom line losses.

What is Next? What does this mean?

Growth, comps, listings, angels, giving. Five (semi) random thoughts, let’s go in order.

1. Nu has room to run. It believes that it has only penetrated 1.3% of its serviceable addressable market (SAM) so...vamos! More room in Brazil, let alone in its newer markets of Mexico and Colombia (of which the F-1 is peculiarly light on the details). Not only that, but it believes its “youngest customers (20-24 years old) are expected to grow their real income by about 70% in the next ten years.”
2. Neobanks across the globe, get out your slide decks - there are some new comps in town. Seriously, this F-1 is packed with concrete numbers that were previously private. As Techcrunch discussed recently, there is a lot of signalling from the first neobanks to move from private to public. Chime and Aspiration are in the wings, with discussions of going public sometime by Q1 2022 and via SPAC, respectively. Monzo and Revolut are also on deck. If Nu surges, great - maybe the valuations were based on fundamentals. If Nu struggles upon listing or the price misses expectations, we could see the value of private neobanks slip. Could this puncture this bubble? Will VCs write down these positions? Will any of my former neobank models and multiples be anywhere remotely accurate? TBD.
3. Not only did Nu list with the SEC, it also listed with the Comissão de Valores Mobiliários (CVM) in Brazil for a program of Brazilian Depositary Receipts that represent a fraction of Class A ordinary shares. This allows Nu to sidestep the Brazilian IPO market, which is down by about 15% this year in dollar terms, with several recent floats cancelled due to poor reception from investors. Nu could pave the way for more Brazilian fintechs to list in the US, say Picpay taking another shot after pulling its NASDAQ IPO this summer. For more on Brazil’s stock exchange (B3) and options for LatAm startups to IPO, check out this great piece by LABS.
4. What a Nu IPO could also mean is a new wave of Brazilian Angels. Around ¾ of employees own a stake in Nu. What makes me further excited about this is the diversity of Nu’s stellar team of Brazilian employees--32.3% black or brown, 44.4% women, and 26.9% LGBTQIA+ and 61.3% of employees in leadership positions are from underrepresented groups.
5. Lastly, David Velez and his wife Mariel Reyes committed to The Giving Pledge earlier this year. Having spent many years investing on the Financial Inclusion team at Omidyar Network, a family office of Pierre and Pam Omidyar, I am particularly excited for what this could mean for philanthropy and flexible-capital model investing in the region.

What did I miss? Let me know on Twitter!

Jenny Johnston is an investor and operator and occasional FTT writer. She began her career at Goldman Sachs before traveling to emerging markets with Omidyar Network and Flourish Ventures to invest in early-stage financial health startups, mainly in Latin America. She built out Bank Partnerships at Modern Treasury and today, Jenny is a Venture Partner at Better Tomorrow Ventures and Rally Cap Ventures while studenting at Stanford GSB. When not figuring out how Twitter works and mentoring early-stage entrepreneurs, Jenny can be found in the Bay Area improvising, hiking, and surfing but never waiting in brunch lines.