Nubank’s IPO is affected by devaluation of fintechs on Stock Exchanges

The long-awaited debut of the Brazilian digital bank Nubank on the New York and São Paulo Stock Exchanges comes against a backdrop of falling shares of similar companies — in technology and, in particular, those offering financial services.

Fintech plans its IPO (its acronym in English, is the public offering of shares, that is, the IPO on a Stock Exchange) for this Wednesday (8). Created in 2013, the company was a pioneer in financial services that sell less bureaucracy and more modernity to customers. Overall, the share offering is an important time for startup investors, who hope to get a return on the money that has been injected into companies.

One of the most recent cases that show the setbacks that fintechs have faced in the Stock Exchanges is that of the Indian Paytm. Last month, the company founded in 2000 staged the biggest IPO on the Indian Stock Exchange, raising more than US$ 2.5 billion in one day (almost R$ 13.7 billion, at the price at the time).

The debut, however, was followed by turbulent days. The price of papers dropped 27%. Valued at US$ 20 billion (almost R$ 110 billion) at the IPO, the company dropped to US$ 11.8 billion and closed last Friday (3) at US$ 14.2 billion (little more of BRL 80.5 billion).

Brazilian Stone, a card machine company that is on the New York Stock Exchange, accumulates a 78% drop this year. PagSeguro, also listed in the US, has fallen more than 50% since February this year.

Nubank is already affected by the uncertain context of its peers. At the end of November, the company cut nearly $10 billion (R$56.4 billion) from its initial offering, which came to $41.5 billion (almost R$235.2 billion).

The year broke records for investment in innovation in Brazil, according to a survey by the Distrito platform. By November, more than US$8.8 billion (R$49.7 billion) had been injected into this industry, an increase of almost 142% compared to last year as a whole.

Fintechs skyrocket when compared to other sectors: more than a third of the total investment, US$3.5 billion (R$19.8 billion), was in financial companies. Startups operating in retail, which are in second place, snapped up almost US$ 1.309 billion (R$ 7.4 billion).

Nubank is one of the companies that depend on this high volume of capital. Still in the phase of major investments and operating in the red, the digital bank had a loss of R$ 500 million from January to September this year, according to the document opening the IPO. Considering only the operation in Brazil, the bank had its first profit in the first half of 2021: R$ 76 million.

Analysts have been saying that the numbers raise the alert of a possible bubble, and that the reduction of stimulus from central banks could accelerate the correction of values ​​of these companies.

Fintech’s pricing is based on “a promise that Nubank will be a great bank and that it will swallow the rest”, says Paulo Cunha, CEO of iHUB, the accredited office of XP Investimentos.

This promise includes the number and profile of the bank’s account holders. “It is more well-regarded as a brand than traditional banks. Their customers today are young people. The idea is that in 20, 30 years, these young people, who will have money, will make their investments there”, it says.

In addition to the specific characteristics of Nubank, the pandemic was a factor that accelerated investment in innovation. First, because of social isolation in different parts of the world, which forced the digitization of all possible processes and led companies to look for solutions in startups and investors to bet on the segment. And second, for the stimuli promoted by the central banks.

In Brazil, the Selic, the basic interest rate that affects the entire economy, reached a historic low of 2% a year and stayed that way for five months. The United States follows with the index zeroed.

In addition to lowering the cost of public debt, lower interest rates encourage investors to turn to the real market, with higher yields. The Selic has already gone up again and is at 7.75% per year — the expectation is that it will end the year at 9.25%. The Fed (Federal Reserve, US Central Bank), already indicates that the stimulus may be reduced soon.

Reluctant to nail that there is a bubble, Cunha says, however, that “the multiples are too stretched”. According to him, technology companies will be the most impacted by the reduction of stimulus from central banks. “They need to invest more and still don’t have a positive operating cash flow that can finance their own activities. Generally, they depend a lot on debt and the good mood of the market”,​ he says.