Nu Holdings Ltd. (NYSE:NU) experienced a modest decline on Tuesday, closing at $14.46, down 0.62%, as the broader market faced headwinds from rising oil prices and higher bond yields. The stock traded as low as $14.40 in after-hours, reflecting a 1% drop from Monday's close. Trading volume reached 67.5 million shares, about 87% of the average daily volume over the past three months, indicating active price discovery rather than a panic sell-off.
The company's second-quarter results, released last week, showed robust growth: revenue surged 39% year-over-year to nearly $5.9 billion, while net income jumped 49% to $1.1 billion, marking the first quarter the company surpassed the billion-dollar profit threshold. Founder and CEO David Vélez highlighted this milestone, emphasizing the firm's operational strength.
However, the market's focus has shifted to the sustainability of Nu's premium valuation. The stock trades at a forward price-to-earnings ratio of 12.6, significantly higher than Brazilian banking peers Itaú Unibanco (7.7) and Bradesco (5.9), but lower than U.S. digital lender SoFi Technologies (20.7). This premium is largely justified by Nu's impressive 33% return on equity, up 4 percentage points from the previous quarter.
Operational Highlights and Credit Risks
Nu added approximately 4 million new customers in Q2, bringing its total to 139 million. Average monthly revenue per active user rose to about $17, with activity levels climbing to 83.5%. The credit portfolio expanded by 37% to $39.4 billion, while deposits grew 18% to $45.3 billion, maintaining a comfortable liquidity position.
The net interest margin improved by 180 basis points to 22.9%, and the risk-adjusted margin increased 290 basis points to 12.4%. However, the company faces rising credit stress: loans overdue by more than 90 days increased by 35 basis points to 6.9% of the portfolio. Early delinquency rates showed some improvement, but management noted seasonal migration and growth among higher-risk borrowers as contributing factors.
Operational efficiency also slipped, with the efficiency ratio rising to 19.5% from 17.6% in the prior quarter. These metrics have raised concerns among investors, especially given the stock's elevated valuation.
Market Context and Outlook
On Tuesday, U.S. equities closed lower, with the S&P 500 down 0.71% and the Nasdaq Composite off 1.03%. Brent crude jumped 4.6%, and the 10-year Treasury yield reached 4.79%, pressuring growth stocks. Nu's decline of 0.62% was relatively mild compared to the broader downturn, suggesting some resilience.
Analysts are watching upcoming credit and deposit data to determine if Nu's $70 billion market capitalization remains justified. The company's ability to sustain margin improvements while managing delinquent loans will be critical. If credit quality deteriorates further, the premium valuation could come under pressure.
Nu's strong profitability and customer growth provide a solid foundation, but the market's patience may be tested if delinquency rates continue to climb. The next few quarters will be pivotal in determining whether Nu can maintain its growth trajectory and justify its premium multiple.
