On December 9, two initial public offerings opened with a bang. Brazil-based Nu Holdings Ltd. (NYSE: NU) opened for trading at $11.25 a share, above its IPO price of $9. San Francisco-based HashiCorp Inc. (NASDAQ: HCP) priced its IPO at $80 and opened at $81.16. Both closed above their IPO prices, and both exited their quiet periods Monday morning.
Since then, HashiCorp has risen by about 4.3%, while Nubank has dropped about 5.0%. Interestingly, both Warren Buffett and Cathie Wood had stakes in the digital bank that has disrupted Brazil’s banking industry, where the five largest banks control more than 75% of the lending market.
Buffett’s Berkshire Hathaway invested $500 million in the company last year prior to the IPO, when the company was valued at $30 billion. Currently, Nubank is valued at around $43 billion, down from a $52 billion valuation at the IPO. Cathie Wood’s ARK Fintech Innovation ETF has acquired more than 2 million shares valued at about $19 million since the bank’s IPO.
Nubank offers no-fee credit and debit cards, mobile payments, personal and business accounts and a variety of investment products. It operates primarily in Brazil, Mexico and Colombia.
Goldman Sachs has initiated coverage on Nubank with a Buy rating and a $15 price target. At a price of around $9.85, the upside potential to Goldman’s price target is about 52%. Nubank’s stock traded up around 5% shortly after the opening bell Monday.
In its note, Goldman wrote that:
Nubank is well positioned to penetrate the highly profitable banking system in Latin America … Indeed, with 35mn active clients [out of 48 million total] generating revenue on a monthly basis, the company is already showing high levels of monetization. We think that as the company ramps up its loan portfolio in high yielding products, such as credit cards and personal loans, it is well positioned to increase profitability significantly beginning in 2023, and we see it reaching an ROE of 39% by 2025.”
Nor are Goldman’s analysts concerned that the bank is overvalued:
Valuation may look expensive with a market cap of $43bn already larger than the largest Brazilian bank (Itau), but long-term and growth adjusted multiples appear attractive. The stock is trading at 13.5x 2025E P/E with a PEG ratio of 0.4x vs. global fintech peers at 19.1x and 0.5x, respectively.
Goldman expects Nubank to double its fiscal 2021 revenue to $1.22 billion, on its way to $3.83 billion in 2023. Net income is forecast at $5.5 million for 2022 rising to $431 million in 2023. Compared to Itau, return on equity in 2025 is estimated at 39.1%, 12.4 percentage points higher than Brazil’s largest bank.
Other brokerages initiating coverage on Nubank Monday, along with their ratings and price targets, include:
- HSBC Securities: Hold, $15
- KeyBanc Capital Markets: Overweight, $12
- Morgan Stanley: Overweight, $16
- UBS: Buy, $12.50
Goldman also initiated coverage on HashiCorp Monday morning with a Neutral rating and a 12-month price target of $90. That target represents upside potential of around 4.6% to the morning’s trading price. Based on Friday’s close price of $91.04, Goldman’s price target represented downside risk of 1.1%.
HashiCorp products offer a standardized approach and consistent workflows for automating the processes critical to delivering modern, cloud-native applications, including infrastructure provisioning, networking, security, and application deployment. As enterprises transition from largely static on-premises datacenter environments to highly dynamic and flexible modern cloud infrastructures, HashiCorp gives customers a standardized and consistent approach to automating mission-critical processes and infrastructure across public, private and hybrid cloud architectures.
In their research note, Goldman’s analysts wrote:
[We view HashiCorp] as well positioned to continue to capitalize on rising momentum in public cloud adoption and drive durable growth over the medium term, with the stock trading at ~42x and ~32x our CY22 and CY23 sales estimates respectively, we believe this is largely reflected in the current valuation and view risk/reward as more balanced at current levels.
For calendar years 2022 and 2023, Goldman estimates revenue of $405 million and $527.2 million, respectively. HashiCorp is not expected to post a profit in either year, with estimated negative EBITDA of $235.9 million in 2022 and $260.7 million in 2023.
Other brokerages initiating coverage on HashiCorp Monday, along with their ratings and price targets, include:
- BofA Securities: Buy, $102
- Cowen: Outperform, $105
- J.P. Morgan: Neutral, $100
- Morgan Stanley: Equal Weight, $90
- Stifel: Buy, $100
In late-morning trading Monday, Nu Holdings traded up 4.9%, at $9.84 in a post-IPO range of $8.75 to $12.24. The average daily trading volume is about 17.5 million shares, and trading was light Monday morning at around 2.7 million shares.
HashiCorp stock traded down about 4.5% to $86.94, in a post-IPO range of $79.27 to $102.95. The average daily trading volume is around 1.6 million shares, and about 256,000 had changed hands on the day thus far.