“Having the IPO in the second week of December was perhaps one of the best decisions in our history,” says David Vélez
One year after its listing on the stock exchange, the Nubank has decided to make its first major sponsorship: the World Cup. And as in so many matches in Qatar, he scored his goal in the 45th minute of the second half. The digital bank debuted on the New York Stock Exchange (NYSE) in December 2021 and, shortly after, the market for securities offerings closed and the famous bell never rang for a Brazilian company.
With the win, though, Nubank grabbed more than the traditional three-pointer. “The bank didn’t need to raise so much capital, but the market was so attractive that we decided to raise much more than we needed,” he told the Stadium/Broadcast the fintech CEO, David Velez🇧🇷 That’s enough money, according to him, to capitalize on new deals, grow where Nu already is, and eventually make acquisitions.
As a public company, what was the main lesson learned in this first year?
Since the IPO, the world has changed completely, from a moment of market euphoria, with a lot of interest in tech companies, to the war in Ukraine, inflation and high interest rates, and overnight you go from hero to bad. In the first quarter, it was difficult to figure out what was going on, especially as we saw our share price drop rapidly. The biggest learning was figuring out what we can and can’t control, and focusing 100% of our energy on what we control. The focus was on execution. We beat all the analysts’ numbers.
It is often said that the game has tipped in favor of traditional banks. What is your assessment of this interpretation?
I do not agree. What is the advantage of fintechs? First of all, the ability to create the best product on the market. When we started nine years ago, there were five banks in Brazil that controlled 95% of the segment. We have contributed a lot to deconcentration. In a market with multiple alternatives, whoever offers the best product at the best price wins. Nubank continues to offer the best product and therefore we continue to grow more than any other bank. This more unfavorable macroeconomic environment has not changed the fundamental and secular factors that have contributed to our growth.
You have raised $2.8 billion and have used very little so far. What is the prospect of using this resource?
The bank didn’t need to raise that much capital, but the market was so attractive that we decided to raise much more than needed. We raised $2.8 billion, had $1 billion in cash and were pretty close to profitability in Brazil. In Brazil, during the year, we need to capitalize more per capital requirement [do Banco Central] and part of the function [do IPO] goes to the growth of Mexico and Colombia. To bring these two countries to break even [equilíbrio financeiro]it will take much less time [do que no Brasil]🇧🇷 We have this reserve for potential acquisitions, organic opportunities or growth acceleration in other verticals.
Are there any attractively priced assets on the market to buy?
There’s still a little to go. In publicly traded companies, valuations [avaliações do valor] they mirrored this new world. In private companies not yet: many have not raised capital because the valuation has dropped, they raised a lot last year and will try to spend as much as possible without raising funds. Our preference is still to grow organically. We have over 40% of the Brazilian adult population as customers, but small market shares in our products. If Nu just tried to increase share to proportion of customers, we could multiply the size of the company several times.
There is still a clear divide in analysts’ view of the bank. Why does this continue? How is it resolved?
There is a much more optimistic group of analysts who tend to understand the long-term thesis. They think that if we keep running like this, in three or four years… We think that the largest financial company in Latin America will become a technology company and we are at the forefront. Given Nubank’s market position and business model, costing up to 20 times less than traditional banks, the potential for value is much greater. And there’s a group more focused on the short term, looking at profitability for the quarter, at what 2023 will be like. There’s also a divergence because we’re a very young company and we don’t give projections because we prefer to keep a lot of flexibility in execution . It will take some time for convergence.
Over the past year, Nubank has changed account remuneration, proposed a change in BDRs and variable remuneration. You seem to have shifted gears in pursuit of efficiency. How were these decisions made? Do you have room for more?
In a more challenging moment, in a market that requires greater profitability in the short term, it is important to demonstrate that we have succeeded in realizing the business model. There is a pressure to look at the levers for efficiency. Many of the decisions we have made have contributed to a positive performance this year. There are many more opportunities. We’re not running a model that aims to optimize next quarter profit. This trillion-dollar market in Latin America will be reinvented in the coming years. There is an opportunity to create new companies that will become major players in financial services. We will not sacrifice this short-term opportunity.
What is Nubank preparing for new products for 2023?
We see a big opportunity in credit products like payroll [com desconto em folha] and in loans with investments as collateral. It’s a market of more than R$400 billion in Brazil, where we have a large customer base and are able to provide credit with less risk. It’s an obvious opportunity and we’re testing payroll loans internally.
What about the high-income strategy?
We have a base of 5 million class A and B customers, which is surprising because the market sees us more as a medium and low income bank. We haven’t yet been able to offer the right product to high-income customers, either because they lack features or because their credit card limit is too low.
Was Nubank surprised by the increase in delinquencies?
We already expected this because a year ago delinquency was very low. In a context of less liquidity in the system, a normalization was expected once state aid ceased. We have decided to halt credit growth for a while, especially personal loans. The market is pricing in a Nubank default that never happened.
How far does the increase in default go?
That’s likely to continue for a few quarters. The important thing is that the Brazilian financial system knows how to navigate and execute in a higher default environment. This means that the system can, and we can, increase margins. Today we operate on higher margins. We’ve increased interest and borrowing costs have decreased.
How was the experience of sponsoring the World Cup?
It was the first experience, we have no previous investment in marketing. We have grown a lot thanks to word of mouth. It has been an interesting time for this move, considering our brand and the customer base we have. It was very interesting to see the number of people who got in touch saying they saw Nubank in the cup.
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Source: Terra
Camila Luna is a writer at Gossipify, where she covers the latest movies and television series. With a passion for all things entertainment, Camila brings her unique perspective to her writing and offers readers an inside look at the industry. Camila is a graduate from the University of California, Los Angeles (UCLA) with a degree in English and is also a avid movie watcher.
