For a company that had been growing by about $10 billion a quarter for most of this year, the Tuesday (Nov. 30) announcement that Nu Holdings, the parent of Brazil-based Nubank, is scaling back the size of its planned initial public offering (IPO) marked a major reversal of trend and momentum.
While that deal downsizing marked about a 20% reduction in the total implied value of the yet-to-be-listed neobank — which has been in a neck-and-neck race with U.K.-based rival Revolut to claim the top spot — the news set off ripple effects in several areas as investors tried to rationalize the decision.
On a macro level, it is hard not to interpret — or at least ponder — what a valuation drop from as much as $55 billion in August to roughly $40 billion today implies about the company, the neobank industry and the IPO market as a whole.
For starters, by lowering its expected deal price range between $8 and $9 per share from the $10 to $11 per share it projected in its federal S-1 filing with the Securities and Exchange Commission (SEC), the “heady growth valuations” that were being bandied around just one month ago have clearly taken a hit.
Back then, it seemed everyone wanted a piece of the bank of the future, including Berkshire Hathaway billionaire Warren Buffett, who has $500 million invested in Nubank.
Read more: Nubank IPO Filing, Valuation Spotlights Heady Neobank Growth Expectations
It’s not as if Buffett is going to lose money on the deal, assuming the new price holds and the stock still gets listed in the next four to six weeks, nor suggests that the legendary long-term investor has lost interest in the 8-year-old FinTech startup that was launched in Sao Paulo in 2013.
But compared to the upsized and meteoric debut earlier this month experienced by electric pickup truck maker Rivian — the last mega hot IPO to come down the chute — Nubank’s run-up to its launch does not compare favorably.
Beyond the interest in anything linked to Buffett, as well as whatever ebb in demand for IPOs this news suggests, Nubank’s downsized offering is also being examined on a sector level, as perhaps an indication that the enthusiasm for global neobanks may be diminishing.
After all, the listing update comes just two weeks after German-giant N26 announced that it was pulling out of the U.S. and closing its New York office after just 18 months in-country. Coming in the wake of that, Nubank’s latest development has certainly sparked discussion about whether the bloom has come off the Neobank rose, so to speak.
See more: N26 US Exit Renews Debate Over What Consumers Want From Digital Banking
And lastly, there’s simply a timing issue. While rival Revolut has made clear that its own IPO days are still billions of dollars in annual sales away, Nubank has been moving ahead with its fundraising plans, despite growing unease on Wall Street over the latest COVID-19 variant, the threat of rising interest rates, the economy, oil prices, you name it — sentiment is far from optimal at the moment.
Read more: Revolut CEO Sets Sights on Hiking Sales Before IPO
While shares of trading platform Robinhood have been drifting lower for the past three months after its IPO in the summer, Reuters and other news agencies have questioned whether demand for South American FinTechs would be as strong, pointing to the 80% drop in shares of fellow Brazilian payments company StoneCo so far this year.
As much as the Nubank deal revision decision has a lot of angles to talk about, it is important to remember that IPOs last for a day, whereas solid, growing global businesses should last a lifetime.
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