A Shared Investment: Cathie Wood and Warren Buffett's Interest in Nu Holdings

Cathie Wood and Warren Buffett may have different investment strategies, yet they both share an interest in a lesser-known company in the fintech sector. This company is Nu Holdings, which is making waves primarily in Latin and South America.

While Wood, the CEO and chief investment officer at Ark Invest, is known for targeting emerging technologies such as artificial intelligence and genomics, Buffett from Berkshire Hathaway tends to stick with established blue-chip stocks. Despite these contrasting approaches, both investors see potential in Nu Holdings.

Nu Holdings is a digital financial services platform that offers a variety of products, including checking and savings accounts, loans, and investment options. Initially, Nu focused its efforts on Brazil, Colombia, and Mexico. Recently, in December, the company announced an investment in Tyme Group, a digital bank that serves 15 million customers in South Africa and the Philippines.

Strong Operating Performance

As of the third quarter ending on September 30, Nu had 110 million active members, demonstrating a 23% year-over-year growth. The company's average revenue per user (ARPU) also showed an increase, rising to $11 per member. This strong user growth has allowed Nu to enhance its profitability; its gross margin improved by 300 basis points, and net income surged by 83% year-over-year, reaching $553 million.

Appealing Valuation Amid Growth

In terms of its valuation, Nu Holdings appears competitively priced among other international fintech companies. The price-to-sales (P/S) ratio indicates that Nu is positioned favorably relative to its peers. Although concerns regarding the economic situation in Latin America have led to a decline in its P/S ratio recently, these macroeconomic challenges shouldn't deter investors from considering Nu.

Comparisons with SoFi

Nu's situation bears some similarities to that of SoFi, a company that has faced challenges yet is also in the fintech space. SoFi, which offers a broad range of financial services through an app, struggled when inflation impacted its lending services. However, as the Federal Reserve began to lower interest rates, SoFi saw a rebound, with its shares increasing by over 80% since September when the rate cuts started.

Even though Nu faces similar economic pressures in Brazil, the long-term growth potential remains strong. The growing user base, opportunities for cross-selling services, and the overall economic development in its target markets contribute to a promising outlook.

Investors should take a step back and recognize that economic conditions can improve over time. This broader perspective supports the case for Nu Holdings as a sound investment for those with a long-term strategy in mind.

Author has disclosed positions in SoFi Technologies.

fintech, investment, stocks