Fintechs’ IPO valuations can look beyond Nubank
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
LONDON, Oct 24 (Reuters Breakingviews) -Fintech bankers spend a lot of time talking about Nubank NU.N. The $70 billion Brazilian financial group has become the go-to valuation benchmark for a host of digital “neobank” players keen to become publicly listed companies. For the likes of Revolut, Chime and Monzo there's just one catch: as listed comparisons go, Nubank leaves something to be desired.
Nubank, or Nu Holdings as per its full name, is a rare beast among a global roster of digital banks that now stretches to 335, on Dealroom’s count. Unlike most of them, it’s already listed and profitable. The group’s shares have soared over 60% above their 2021 initial public offering price of $9 a share. They now trade at 32 times the $2 billion of earnings analysts expect for 2024, using Visible Alpha data.
The first surprise is that this sort of multiple looks out of kilter with Revolut’s recently minted $45 billion valuation. Even if the UK fintech grows its revenue in 2024 by 80%, as it did in the first six months, and boosts the net income margin to 25% from 19% last year, its earnings would be just over $1 billion – implying a much lower valuation of $33 billion based on Nubank’s multiple for the same year.
Using 2026 multiples instead doesn’t help much. The Brazilian bank trades at 16 times its forecast earnings in two years’ time. On that basis, Revolut would need to generate almost $3 billion of net profit in two years’ time for its current implied worth to make sense, which seems a stretch.
Nubank’s shortcomings as a valid comparison for European and North American fintechs go deeper. On the face of it, the Brazilian group and the likes of Revolut are cut from the same cloth: they aim to offer a slicker and quicker digital banking experience, at a cheaper cost than traditional big banks. But Nubank has some significant geographical advantages that complicate simplistic comparisons.
The group operates in a domestic market where it has been unusually straightforward to take market share. It has prospered by offering credit cards to punters who can repay on time but struggle to get loans from legacy players, because of the latter’s inefficiency. That’s allowed Nubank’s market share of Brazilian credit card balances to grow from zero to 10% in the five years to 2022, according to Redburn Atlantic analysts’ estimates. Its revenue grew 68% in 2023, and analysts reckon sales will grow another 40% this year, using estimates gathered by LSEG.
Nubank also operates in a generally higher-rate South American environment, where returns are naturally higher and competition is less intense than in Europe and the United States. The last quarter of 2023 Nubank’s net interest margin, a measure of how much money banks make from lending after deducting interest paid to depositors, was a huge 18.3%. The full year Revolut’s equivalent figure, by contrast, was around 3%.
An even more basic difference is what Revolut and Nubank do. As the name implies, Nubank is a bank: interest income from lending constituted 80% of group revenue in 2023. Revolut, in contrast, makes almost the same proportion of its revenue via fees of different sorts. In 2023 interchange income – transaction fees paid by businesses to banks – made up around a third of its top line in 2023. The rest came from areas like charging customers for foreign currency exchanges.
As such, for all its status as the go-top valuation peer, Nubank doesn’t look similar enough to Revolut and co to be a decent benchmark. And even if it was, the UK fintech would need to trade at a significant premium to the Brazilian group’s multiple to make its current valuation stack up. Hence bankers trying to prep their fintech clients for a possible public offering need to get creative.
One workaround is to change the valuation metric. In much earlier funding rounds, Revolut’s advisers and investors used an alternative measure to price the company – enterprise value relative to sales, people familiar with the matter told Breakingviews. While it clearly did the job, EV/sales is more usually associated with unprofitable early-stage startups.
The way bankers prepping a possible 2025 Revolut public offering might square the circle is to use different listed peers as a benchmark. The company has contacted at least one equity research analyst recently to gather views on possible public comparator companies, a person familiar with the matter told Breakingviews. In general, investors tend to assign a higher value to fee income than interest revenue, one neobank executive told Breakingviews.
Adyen ADYEN.AS, the $48 billion Dutch payment group that mainly sources its revenue from fees, trades at 32 times the earnings analysts expect it to make in 2026, Visible Alpha data shows, compared to Nubank’s 16 times. Average the two together, and the implied 2026 price-earnings multiple for Revolut would be about 24. On that basis, hitting its $45 billion valuation would imply earnings of $1.9 billion for 2026 – roughly equivalent to doubling the bottom line each year.
Not all neobanks could make the same argument. Monzo, OakNorth and Starling Bank rely more on interest income, so might find it harder to pretend to be Adyen-like as well. Either way, while its recent successes make Nubank look like the ideal benchmark, that’s not quite the full story.
Follow @karenkkwok on X
Revolut revenue breakdown https://reut.rs/4hio0Kz
Nubank and Revolut 2023 revenue split https://reut.rs/3AbzdMe
Editing by George Hay, Liam Proud and Streisand Neto
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