As the world became increasingly reliant on the Internet, dependence on remote banking solutions has grown tremendously over the past few years, especially as the COVID-19 pandemic accelerated the transition to digital banking platforms.

The penetration rate of digital banking in the U.S. has grown significantly, with more than 66% of Americans using online banking services in 2023. By 2029, this number is expected to rise to 79%.

As more and more customers rely on digital banking, financial institutions will likewise need to build platforms that will enable them to digitize their services and maintain their remote banking services.

That’s why financial technology firms such as nCino (NCNO) will become crucial in an increasingly digitized economy.

Founded in 2011, this cloud-based banking platform provides a wide array of solutions to help financial institutions digitize their business processes. The company works with community banks, credit unions, independent mortgage banks, and other financial entities.

nCino’s cloud-based banking platform, built on Salesforce, currently provides customers with core solutions for their digital banking needs.

These include Data, AI, and Analytics for data processing and automation; Omnichannel Experiences for unified customer interactions and operations optimization; Account Onboarding for streamlined customer onboarding; Mortgage for streamlined loan origination and lending processes; Portfolio Management for managing commercial and business loans; and Integrations for integrating and managing customer data.

nCino has steadily grown its revenues over the past few years as digital banking has seen increased adoption. The company’s revenues went up from $204 million in 2021 to $541 million this year. 

Yet despite the banking platform’s growth and the tailwind that has supported it, the market is largely ignoring this company. As-reported financials tell the story.

Generally Accepted Accounting Principles (“GAAP”) accounting makes it seem that nCino isn’t a profitable business. As can be seen in the chart below, the company’s as-reported return on assets (“ROA”) has remained negative since 2020.

When businesses appear unprofitable, it can be easy for investors to shy away from them. However, nCino is anything but.

When Uniform Accounting is used to clean up the discrepancies found in GAAP numbers, nCino’s hidden potential becomes clear.

Instead of a company that’s delivered negative returns, investors will see a business that’s not only profitable but also one that’s become more profitable as it scales. Since 2021, the company’s Uniform ROA has tripled from 7% to 21% this year.

As financial institutions and consumers become more reliant on digital banking solutions, nCino is poised to become a beneficiary of this tailwind which will enable it to grow its business and returns further.

Viewed through the lens of Uniform Accounting, this company is a misunderstood business. And investors who catch on to this will find an opportunity that could warrant significant upside.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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