The Oracle of Omaha has been making large investments in multiple fintech companies. In fact, Buffet has shown interest in the Brazilian company, Nu Holdings Ltd. (NYSE: NU). So far he has invested over $900 million in NU stock. Even for Buffet this is a huge investment and NU stock is actually Buffett’s 8th largest investment in terms of shares. This has left some investors wondering why Buffett has invested in NU stock, but not in SoFi Technologies, Inc. (NASDAQ: SOFI).
Why has Buffett invested in NU stock?
NU Holdings has grown its customer base to 70.9 million clients in just over a year since going public. This growth was in part fueled by NU’s decision to offer credit cards to people who would otherwise not be eligible for one at other banks in the region. NU Holdings tries to minimize the risk incurred by these practices by reducing the eligible benefits that the customer is initially eligible for. This means that as a member pays their bills on time, they will unlock more benefits and credit limits.
Another reason Buffet may have invested in the company is its management. It’s no secret that Buffett likes to invest in companies with good management. As he once said, “When we own portions of outstanding businesses with outstanding management, our favorite holding period is forever.”
On this note, NU recently brought David Marcus – the former president of PayPal and a former Meta Board member – on as part of its Board of Directors. It’s expected that Marcus will play a crucial role in NU’s journey going forward. But the rest of NU’s management team brings significant experience to the table as well.
Its CEO, David Velez, was a partner at Sequoia capital and NU Holding’s CFO, Guilherme Lago, worked at Credit Suisse Group AG and Mckinsey. Nu Holding’s CPO Jagpreet Duggal also worked as a director of product management at Facebook. In short, NU’s management team has significant experience in this sector and under their leadership, NU grew its revenues from $1.39 billion in 2021 to $3.73 billion in 2022 – a 169% increase YoY.
NU’s Edge – Brazil’s Unbanked Population
According to Brazil’s Central Bank, in 2018, 55 million Brazilians were unbanked. Brazil’s large unbanked population is largely the result of how difficult it is to receive a credit card there if you are not a wealthy person. In general, it’s very difficult to get a credit card in Latin America without being one of the wealthy. By offering credit cards to people who have no alternative, NU has captured a large, untapped market and this is likely the main reason NU is as successful as it is today.
Compared to SOFI, NU has a much larger client base due to its operations in Brazil, Mexico, and Columbia which in total have a larger population than the US. Thanks in part to these widespread operations, Forbes listed NU as one of the world’s best banks in 2022.
Overall, NU has a larger client base, more revenues, and is growing at a faster rate than SOFI. However, this success can be attributed to the absence of real competitors for NU since it focuses on an untapped market in Latin America. On the other hand, SOFI faces competition from not only established banks but other fintech competitors.
NU is still working towards profitability, but many forecast that the company will reach profitability in 2023 or 2024 since the company has been able to keep its costs per customer low while increasing its revenue per customer through the “compounding effect of more engagement”. In Q4 of 2022, NU achieved a net income of $58 million at a holding level, but this is excluding the effect of its Contingent Share Award termination.
NU is expected to report an EPS of $0.02 and $1.393 billion in revenues at its Q1 2023 earnings on May 15th. SOFI is also unprofitable and is forecast to report an EPS of $-0.077 and $442.262M in revenue in Q1 2023 .
How are NU stock & SOFI stock similar?
Both NU and SOFI share the common goal of becoming a one stop shop for financial services. Since SOFI specializes in student loan refinancing, it creates a bond with younger customers who – hopefully – turn into lifelong customers who use SOFI for all their banking needs.
Similarly, NU offers credit cards to customers 18 or older in Brazil – capturing a demographic of young people who will hopefully become lifelong customers as well. This means that both companies could continue to grow and expand as their customer base grows older and younger generations adopt their services as well.
NU Stock vs. SOFI Stock: Which is the Better Fintech Stock?
It’s hard to argue against Warren Buffett’s logic for investing in NU stock, however, compared to SOFI, NU could be exposed to more risk.
Brazil has just gotten out of one of its worst economic crises in history and the new government brings more uncertainty with it. Corruption is also very high in Brazil and since established banks may feel threatened by NU’s growth, one day the government could turn against NU Holdings.
The low barrier to entry associated with receiving NU’s credit cards could also expose the company to greater risk. Given Brazil’s population generally has less disposable income then US residents due to the country’s weaker currency, inflation, and struggling economy, SOFI may have an edge as an American company operating in the US.
Media Sentiment
@ftr_investors is bullish on NU stock and other Latin American companies
@SteveUrkelDude captures SOFI investors’ fear of the Cramer curse…
Technical Analysis
NU Stock
Overall, NU has been trading in a sideways channel between $4.92 and $3.86 since May 2022. Within this larger channel a downwards channel formed, but NU stock broke out testing and rejecting the upper trendline.
The indicators show that NU stock is trading below the 200 and 50 MAs on the hourly time frame. The 50 and 200 MA recently had a golden cross indicating a possible trend shift. The RSI is at 48 and the MACD recently had a bullish crossover.
Given the possible trend shift signaled by the golden cross and the successful retest of the upper trendline, these indicators could signal the start of a bullish uptrend. Since NU stock is currently testing its support at $4.48, a possible swing play would be to go long on the break and hold above the 200 MA above this support.
Possible take profits would be the 50 MA, $4.67, and $4.76 resistances. With a stop loss at the $4.40 support the R:R on this play would be 2 if it tests the $4.76 resistance.
SOFI Stock
SOFI has been trading in a sideways channel between $4.92 and $7.59 since April 2022, but within this larger channel a smaller downwards channel has formed.
Looking at the indicators, SOFI is currently trading below the 50 MA and above the 200 MA. SOFI is currently testing the 21 MA. The 50 and 200 MA recently formed a golden cross indicating a potential trend shift. The RSI is at 46 and the MACD is bullish.
As for the fundamentals, SOFI’s positive earnings in January triggered a run up to the $7.59 resistance, but the stock dropped to the $5.32 support due to profit taking and the banking crisis.
SOFI stock saw some positive momentum following its announced acquisition of Wyndham Capital Mortgage and is scheduled to release its Q1 2023 earnings on May 1st. It’s upcoming earnings and the Supreme Court’s expected ruling in June are important catalysts for SOFI stock.
SOFI Stock & NU Stock Forecast
While both NU and SOFI are Fintech companies, they are not direct competitors. Since NU operates in Latin America it won’t compete with SOFI for market share any time soon. However, the NU stock forecast appears strong as the company continues to grow at a rapid rate and introduce new services such as its recently launched crypto token – Nu coin.
Both companies are trying to appeal to the youth albeit through different methods with SOFI focusing on student loan refinancing while NU capitalizes on banking for the underserved. However, the SOFI stock forecast for 2023 largely depends on the Supreme Court’s decision in June regarding the student loan pause. While both FinTech companies come with their own risks and rewards, the FinTech industry as a whole is on track for continued growth out of sheer practicality.
For example, FinTech is more practical than traditional banking because it cuts down servicing costs such as maintaining physical branches while still offering high value services. As more and more transactions move online, the digital revolution continues to work in the industry’s favor and the widespread adoption of smartphones means that our phones will increasingly act as wallets. Given the industry’s expected growth, NU stock, SOFI stock, and ALLY stock are a few FinTech stocks worth watching.
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