Nu Holdings Ltd. (NYSE: NU) experienced a 3.9% decline in its share price on Friday, closing at $14.30, even as the digital banking giant reported record quarterly earnings. The market's focus shifted to a rise in late-stage delinquencies, which overshadowed the company's robust profit performance.
The stock's decline erased approximately $2.8 billion in market capitalization, bringing Nu's valuation to nearly $69.1 billion, or about 19.5 times its trailing earnings. Trading volume was 79.13 million shares, slightly above the average of 77.20 million. In after-hours trading, shares edged up 0.14% to $14.32.
The pullback came two weeks after a strong earnings response, during which Nu posted a second-quarter net income of $1.06 billion, a 49% increase on a constant currency basis and surpassing the Visible Alpha consensus of $967.2 million. Gross revenue grew 39% year-over-year to $5.88 billion, while the risk-adjusted net interest margin expanded to 12.4%, up from 9.5% in the previous quarter.
Credit quality presented a mixed picture. Early-stage delinquencies (15-90 days) improved to 4.8%, but the proportion of loans overdue by more than 90 days rose by 35 basis points to 6.9%. This increase in late-stage arrears could impact future provisions, as the credit portfolio expanded to $39.4 billion, up 37% from a year ago.
Deposits reached $45.3 billion, providing a 1.15x buffer over outstanding loans, with deposit costs stable at 88% of interbank rates. Customer growth remained a key driver of operating leverage, with the customer base expanding by approximately four million to 139 million across Brazil, Mexico, and Colombia.
However, costs require attention. The efficiency ratio worsened to 19.5% from 17.6%, reflecting increased spending on property, marketing, and international expansion. These investments are aimed at sustaining growth in new markets, but they put pressure on near-term profitability.
Analysts maintain a bullish outlook, with six of nine recent ratings being buys, two holds, and one sell. The average price target stands at $17.47, ranging from $10 to $23. The upcoming third-quarter earnings report is scheduled for November 12, and Brazil's central bank policy meeting on September 14-15 will be closely watched for its impact on loan volumes and funding costs.
Risks include accelerated credit growth that could lead to higher defaults and provisions, currency weakness, persistently high interest rates in Brazil, elevated expansion expenses, and operational challenges in Mexico, Colombia, and the United States. These factors could weigh on Nu's returns in the coming quarters.
