Nubank’s $ 55 billion IPO shows fintech is just beginning

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Brazilian fintech giant Nubank seeks valuation in its upcoming US IPO to push the company’s valuation beyond the largest bank’s $ 55.4 billion value traditional country, Itau Unibanco Holding SA, thus demonstrating the power of financial technology in today’s markets.

In a previous funding round led by Berkshire Hathaway Inc, led by Wall Street icon Warren Buffett, Nubank was valued at $ 30 billion – with 40 million more customers in Latin America, Nubank is the latest fintech phenomenon to capture the imagination of potential investors. .

If Nubank’s IPO came with a market cap of over Itau Unibanco’s $ 55.4 billion, it would automatically become one of the largest fintech companies in the world, overtaking Robinhood with space to spare. In fact, that would put Nubank at a higher market cap than recently listed Robinhood and Wise combined, at the time of writing.

Bankers close to the company even offered a valuation of up to $ 100 million, according to a Reuters source, although they also confirmed that fintech was unlikely to debut at such a high price at the time. where it would become public.

(Image: Business Insider)

The optimism surrounding Nubank’s strong debut stems from an extraordinary start in 2021 for fintechs around the world. M&A volume accelerated to an all-time high of 67 in the first quarter of 2021, while the number of IPOs launched exploded to 11 at the start of the year, more than the top three 2020 quarters combined.

By launching an IPO that could lead Nubank to debut on Wall Street as Brazil’s largest financial institution, we see a clear sign that the fintech market is only heating up in what should be a period. boom for emerging technology.

Nubank’s Path to Wall Street

Amid all this investor appetite for Nubank, it’s worth remembering that the company was only founded eight years ago – and only offered one product to customers – a credit card. Customers were able to withdraw credit cards from the company before making deposits to fund their debit card, in a measured strategy that has since been repeated in new markets with success.

Nubank has since adapted its offerings to include more services such as personal loans, life insurance, instant payment services, investment products and platforms for small entrepreneurs.

It is also important to note that the business was not really profitable last year. Nubank recorded losses of 230 million reals (about US $ 44 million) and a loan book of about 18 billion reals (about $ 3.5 billion) at the end of 2020. For comparison, Brazil’s largest traditional bank, Itau Unibanco, reported a profit of $ 18.5 billion. reals and a loan portfolio of 870 billion reals.

Despite this, Nubank has much greater growth potential for 2021, and the company has already distributed more debit cards than Itau Unibanco. The company has already experienced regional expansion in countries like Mexico and Colombia and in the first quarter of 2021, Nubank made a profit of 6.8 million reals.

Now, after evidence of profitability and strategic expansion, Nubank has reportedly retained the services of Morgan Stanley, Goldman Sachs and Citigroup in an attempt to conduct its IPO in the United States. While speculation suggests the IPO may be imminent, it may not arrive until early 2022.

Riding the fintech IPO boom

2020 was a pivotal year for fintechs. In the United States alone, eight fintech companies went public last year. That number has already been surpassed in 2021, and although we’re only halfway through the third quarter, we’ve already seen the arrival of behemoths like Marqueta and Robinhood on Wall Street.

Of course, it’s worth pointing out that the fintech boom is part of a much larger IPO frenzy that has swept through a range of industries – largely tech-based.

PwC

(Photo: PwC)

As the chart above shows, the total number of IPOs arriving in the United States has already surpassed the totals of 2020 and 2019 in the first two quarters of 2022 – and the same is true of the revenue generated. .

As an emerging technology driven by the need for a digital transformation for businesses in the wake of the Covid-19 pandemic, fintech is attracting investor interest more than ever.

The future is also bright for startups early in their journey that are generating new products that seek to innovate beyond today’s leading companies – playing their part in what appears to be a treadmill of companies in progress. constant evolution.

We can look to new players on the fintech scene like Clyde, Digit and Connectum – the latter of which pioneered secure, multi-currency, token-based 3D borderless transactions with the primary intention of helping businesses to operate in a world that demands more digital transformation after the pandemic.

The fintech IPO boom was also driven by exit pressure from companies that have benefited from years of venture capital support and the need to offer their investors a large exit salary as a substitute. a fair reward for their significant support.

As the IPO bubble grows, so do corporate valuations. It has also led to more fintechs looking to enter public markets when they are able to grab the attention of investors who can provide seismic valuations like Nubank’s. While the FinTech industry looks set to continue its exponential growth, a possible downturn in the IPO market could cost companies millions while the boom ends.

For Nubank, however, the prospect of a $ 55 billion IPO could be crucial in securing its status as one of Latin America’s largest financial institutions – a status that would have been unimaginable before the boom. of the initial public offering caused by the pandemic. It is this overtaking of their more traditional competitors that will ensure the role of fintechs in the future of finance.

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