2 Fintech Stocks From Warren B

2 Fintech Stocks From Warren B

The incumbent banking system is categorized as expensive, clunky and having a relatively poor user experience. The financial sector has traditionally lagged many years behind the rest of the market in terms of technology.

Yet, there are many Financial Technology (aka Fintech) startups that see these issues with the traditional financial system as an opportunity to disrupt the industry. Many Fintech companies offer lower costs, faster transactions and a much more user-centric experience. Therefore, it is no surprise that the global Fintech market is forecasted to grow at a rapid 20.5% compounded annual growth rate to $699.50 billion by 2030, according to estimates from Adroid Market Research.

Therefore, in this article, let’s take a look at two of my favorite Fintech stocks, one of which was bought by
Warren Buffett
(Trades, Portfolio) and the other which was bought by
Ray Dalio
(Trades, Portfolio) in 2022; let’s dive in.

Please note, the guru holding information in this article is based on 13Fs and other filings with the SEC. Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.

1. Nu Holdings

Nu Holdings (NU, Financial), also know as “NuBank” to its customers, is the largest Fintech bank in Latin America. The company has a bold mission to “bank the unbanked” as a large portion of transactions are still made with cash in Latin America. Thus, this represents a huge growth opportunity.

Warren Buffett
(Trades, Portfolio)’s investing conglomerate Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) purchased a staggering $1 billion worth of shares in the company in 2022. During the times when it was buying according to the 13F reports and other SEC filings, the stock traded at an average price of approximately $9.38. At the time of writing, the stock is trading at approximately $5 per share and thus is significantly cheaper than the price Buffett’s firm invested at (though if the firm invested pre-IPO, it’s possible that it actually got a lower price – we don’t know enough information about this unfortunately, as the public only has access to the SEC filings).


Business model

The company was founded in 2013 as a simple Fintech platform that enabled a card from Mastercard (MA, Financial) to be managed via a mobile application. However, since that point the company has expanded its services massively to become a financial “super app.” The platform now enables customers to “Spend, Save, Invest, Protect and Borrow,” thus capturing value across every part of the financial chain from payments to loans and even cryptocurrencies. As of 2022, the company has over 45 million active accounts, with 29 million credit card customers and 4 million customers with personal loans. The company also aims to help small- and medium-sized companies with cash flow, as this market has historically been underserved from a credit perspective.


Growing financials

Nubank generated record revenue of $1.2 billion during the second quarter of 2022, which increased by a rapid 244% year over year. This growth was driven by strong user growth of 51% year over year to 62.3 million across Brazil. The platform also has been adopted by over 36% of Brazil’s population and is the primary bank for 55% of its monthly active users. The transition from secondary to primary bank is a major tipping point and indicates mass adoption coupled with abundant trust.

The business also recorded a record activity rate of 80% for its users, up 8% year over year. As Nubank generates a substantial portion of its funds from transaction volume, more activity generally equals higher payment volumes over time.


Nu Holdings did report a slight decrease in its gross margin from 50% in 2021 to just 31% in the second quarter of 2022. This was due to higher interest expenses (thanks to rising interest rates). In addition, the company’s loan portfolio is still in its early stages and thus over time it is expected to mature and gross margins will recover.

Nu Holdings reported an eye-watering 124% increase in its operating expenses to $388.1 million. This was driven by increased headcount, stock-based compensation for top executives and increased customer support expenses. Overall, I think this is not a major issue as I believe investing into people and paying them well is the key to long-term retention and company success. A key metric to watch is expenses as a percent of total revenue. In this case we have seen a decline from 51% in the second quarter of 2021 to just 34% by the second quarter of 2022, which is a positive sign.

The high operating costs mean the company is operating at a loss of $24.6 million. The good news is the business has a solid balance sheet with $3.7 billion in cash and cash equivalents vs. total debt of just $617 million, which is manageable.


In order to value Nu Holdings, I have plugged the financial data into my valuation model, which uses a discounted cash flow method of valuation. Given the business grew its revenue by over 200% in the prior year, I have forecasted 70% revenue growth for next year and 50% per year over the next to two to five years.


Over time, I am forecasting operating leverage to take hold as the company benefits from fixed costs and platform growth. I therefore forecast its operating margin to increase to 20% over the next 10 years.


Given these factors, I get a fair value estimate of $7.48 per share. The stock is trading at ~$5 per share at the time of writing and is approximately 33% undervalued.

2. Fidelity National Information Services

Fidelity National Information Services (FIS, Financial), or FIS as it likes to call itself (though the moniker has yet to catch on), is a Fintech company that provides financial solutions for merchants, banks and financial institutions.

The world’s largest hedge fund, Bridgewater Associates, which was founded by
Ray Dalio
(Trades, Portfolio), bought shares of Fidelity in the second quarter of 2022. Dalio’s firm paid an average price of $19 per share, which is ~16% more expensive than where the stock trades at the time of writing.


Business model

The company’s Merchant Solutions segment helps small- and medium-sized businesses as well as large retail chains process payments across 100 countries. In 2019, the company acquired payments giant Worldpay to help expand its offerings and payment gateway solution.

Its Banking segment provides core processing software for banks and lenders, while its Capital Markets segment helps trading firms and asset managers with a variety of buy-side and sell-side services.

Notable customers for the company include tech giant Microsoft (MSFT, Financial), which in 2022 expanded its partnership with Fidelity and Worldpay for its Xbox and Azure cloud payments online. Four out of the top five crypto exchanges also use the platform to enable banking customers to buy and sell bitcoin direct from their bank accounts.

Growing financials

Fidelity generated solid financial results for the second quarter of 2022. The company reported $3.72 billion in revenue for the quarter, which beat analyst estimates by $53.07 million. This was driven by solid 14% growth in its Merchant Solutions segment, despite a slight headwind from the Russia-Ukraine crisis. Organic revenue growth in the Banking segment also increased by 6% year over year, while the Capital Markets segment grew by 7% year over year. The company also gained important investment management companies T. Rowe Price and Franklin Templeton as customers.


Earnings per share was $1.73 in the quarter, which beat analyst estimates by $0.07. This was despite a 130 basis point contraction in its Banking adjusted Ebitda margin, which was driven by inflation and extra fees.

Overall, the company generated a solid $800 million in free cash flow, which was level with management’s expectations. Fidelity has a high free cash flow ratio of ~95% of its adjusted net earnings, which is solid.

Management showed confidence by saying the company will buy back a total of $3 billion worth of shares throughout 2022. The company also reduced its debt by ~$675 million, so it won’t likely be having to raise additional debt to fund buybacks.



The stock trades at a price-earnings ratio of 11.84, which is 40% cheaper than its five-year average.

The GF Value calculator indicates a fair value of $139 per share for the stock, which would make it appear undervalued. However, the GF Value calculator does warn of a possible “value trap” which could be driven by the sharp decline in share price and margin squeeze.


Final thoughts

The Fintech industry is increasingly expanding as emerging markets and new business models develop. Nu Holdings is the largest fintech bank in Brazil and is in a prime position to benefit from the secular trends. Fidelity is also a great company, but it is more niche and technical, and thus more difficult to value.

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