Nu Holdings (NYSE: NU) experienced a sharp rally on Friday, with shares climbing 10.23% to $15.36 in morning trading after the Brazilian digital bank reported its first-ever quarter with net profit exceeding $1 billion. The milestone, coupled with a significant improvement in lending margins, reignited investor enthusiasm for the fintech's growth trajectory.
The company's second-quarter results, released before the market open, showed net profit of $1.06 billion, a 49% increase year-over-year and 9.6% above the $967.2 million consensus forecast. Revenue also came in strong at $5.88 billion, up 39% from the prior year and 5% higher than the $5.60 billion analysts had projected. The combination of robust top-line growth and margin expansion suggests that Nu's performance is not merely a function of lower credit costs but reflects genuine operational strength.
Margin Expansion Takes Center Stage
The most notable metric was the risk-adjusted net interest margin (NIM), which surged to 12.4% from 9.5% in the first quarter and 9.9% a year ago. This 290 basis point sequential improvement was 140 basis points above the approximately 11% that bullish investors had anticipated, according to JPMorgan. The margin recovery was driven by a $100 million decline in credit costs, which fell to $1.69 billion, and a 5.9% sequential expansion in the credit portfolio to $39.4 billion.
Chief Financial Officer Rob Livingston expressed confidence that the 12.4% risk-adjusted margin is sustainable "in the foreseeable future." He noted that while loan growth has moderated from the exceptionally strong pace seen earlier, the portfolio still expanded by about 5% since March. The company also benefited from Brazil's Desenrola refinancing program, which accounted for approximately 5% of total credit costs, or about $85 million. Livingston emphasized that the improvement would have occurred regardless, as seasonality also played a role.
Market Reaction and Analyst Divergence
The market's response was immediate and pronounced. Trading volume reached 83.1 million shares by 11:31 EDT, representing 94% of the daily average, and the stock touched a session high of $16.22 before settling around $15.36. Nu's market capitalization swelled by approximately $6.9 billion, nearly seven times the size of the $1 billion share repurchase program the company announced in June.
Analyst opinions remain sharply divided, with price targets ranging from $10 to $19. Needham's Kyle Peterson reaffirmed a Buy rating and raised his target to $19, implying 23.7% upside from current levels. Susquehanna's James Friedman maintained a Hold with a $16 target, while Bank of America's Mario Pierry stuck with a Sell and a $10 target. The nine-analyst consensus stands at $17.10, suggesting an average upside of 11.3%.
Credit Quality and Operational Highlights
Credit quality showed mixed signals. Early delinquency (15–90 days) improved to 4.8% from 5.0% in the first quarter, but remained 0.3 percentage points higher than the same period last year. Total credit costs were still 60% above the year-ago level, reflecting the ongoing normalization from exceptionally low levels. The company added approximately 4 million customers during the quarter, bringing the total to nearly 139 million, while deposits stood at $42.4 billion.
Growth in the credit portfolio outpaced customer expansion, indicating stronger monetization of the existing user base. This trend is likely to continue as Nu deepens its penetration in Brazil and explores opportunities in other Latin American markets.
Future Outlook and Risks
Looking ahead, Nu's U.S. expansion remains a long-term opportunity. In January, the company received conditional approval to establish a national bank, with requirements to fund it within 12 months and begin operations within 18 months. However, execution risks remain, including potential delays and increased expansion costs.
The key test for Nu will be whether it can sustain the improved margin profile. If the risk-adjusted NIM remains above 12% while delinquencies stay in check, the current rally may have further room to run. Conversely, a reversion toward the 11% bull-case scenario would leave the stock with less margin for error at current valuations. With the stock still 19% below its 52-week high of $18.98, the market is pricing in optimism, but the fundamentals now appear to support at least some of the enthusiasm.
