Nubank: David vs Goliaths - [Business Breakdowns, EP.123]

This is Zack Fuss, an investor at Irenic Capital, and today we’re breaking down Nubank. The Brazilian-based neobank has gone from nothing to extraordinary scale in a short period of time. 10 years after its founding, the company counts 46% of Brazil’s adult population as customers, is the largest Fintech in Latin America, and has a market capitalization of $37 billion. The fact that it’s achieved this in an environment that heavily favored the large incumbent banks makes its story all the more impressive. To break down the business, I am joined by Daniel Bakalarz, Managing Partner at Unison Asset Management. Dan has a long history with this business and it shows in our discussion. We discuss the confluence of factors that made this business possible, the economics of a typical Nubank customer, and the competitive dynamics of banking in South America. Please enjoy this business breakdown of Nubank. For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. ----- This episode is brought to you by Tegus. Tegus is the modern research platform for leading investors, and provider of Canalyst. Tired of calculating fully-diluted shares outstanding? Access every publicly-reported datapoint and industry-specific KPI through their database of over 4,000 drivable global models hand-built by a team of sector-focused analysts, 35+ industry comp sheets, and Excel add-ins that let you use their industry-leading data in your own spreadsheets. Tegus’ models automatically update each quarter, including hard to calculate KPIs like stock-based compensation and organic growth rates, empowering investors to bypass the friction of sourcing, building and updating models. Make efficiency your competitive advantage and take back your time today. As a listener, you can trial Canalyst by Tegus for free by visiting tegus.co/patrick. ----- Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss | @ReustleMatt | @domcooke Show Notes (00:02:44) - (First question) - A background on neobanks and how Nubank is unique (00:04:17) - The company’s origin story and how it moved up the value chain over time (00:09:43) - Nubank’s rise to a becoming a market leader in just a decade since its formation in 2013 (00:17:04) - The backdrop in Brazil that led to the opportunity for Nubank to enter the market (00:23:34) - A breakdown of Nubank’s revenue (00:29:06) - The makeup of a mature Nubank customer and the company’s average revenue from that customer (00:33:33) - Reasons for the business pricing its annual percentage rates so aggressively  (00:34:18) - The comparison between the business and traditional bank holding companies in the US and South America (00:43:40) - Potential opportunities for Nubank in the future (00:52:12) - The biggest risks to the company moving forward (00:57:30) - Brazilian regulator's opinion on Nubank’s rise in the market in context of its large established peers (00:59:54) - Lessons learned from studying the business (01:05:06) - Dan’s parting wisdom on Nubank and what he wants people to take away from this breakdown