Nu Holdings (NU) shares remained near the previous close in early trading Wednesday, following a 2.33% gain on Tuesday that brought the stock to $12.72. The stability comes after Citigroup downgraded the Latin American digital banking giant to neutral from buy, slashing its price target to $13 from $18. The downgrade has refocused investor attention on rising credit losses, shrinking margins, and an impending chief financial officer transition.
Citigroup's Concerns
Analysts at Citigroup highlighted three key headwinds: increasing credit losses, declining operating margins, and the upcoming CFO change in July. The shift in sentiment marks a departure from the earlier growth-at-all-costs narrative, with the market now demanding proof that Nu's lending expansion remains profitable. Susquehanna analyst James Friedman noted that operating margins dropped 760 basis points to 19.2% in the first quarter, pressured by higher exposure to credit cards and unsecured loans. The company increased its credit loss allowances by 33% quarter-over-quarter, setting aside more capital for potential defaults.
Strong Q1 Results and Buyback Support
Despite the downgrade, Nu reported a robust first quarter. Revenue exceeded $5 billion for the first time, net income surged 41% to $871 million, and the customer base grew to over 135 million, with more than 115 million in Brazil. Founder and CEO David VĂ©lez highlighted a 29% return on equity, underscoring the company's ability to generate profits relative to shareholder capital. On June 4, the board approved a new $1 billion share buyback program, effective through June 3, 2027, though the company is not obligated to repurchase any specific amount.
Competitive Landscape
Competition in the region remains fierce. MercadoLibre's Mercado Pago reported 83 million monthly active users and an 87% jump in its credit portfolio to $14.6 billion in the first quarter. Leandro Cuccioli, head of investor relations at MercadoLibre, told Reuters, "We are willing to sacrifice these short term profits because we think that the opportunity is worth it." This aggressive stance could pressure Nu's margins further.
Leadership Transition
Nu's CFO change is set for July 13, when Rob Livingston, formerly Visa's North America CFO, takes over from Guilherme Lago. Lago will transition to a special adviser role. The company stated that the leadership change will not alter its operating model, risk appetite, or long-term strategy.
Market Context
Broader markets were cautiously higher Wednesday, with S&P 500 and Nasdaq futures edging up ahead of the Federal Reserve's policy decision. The NYSE will maintain normal trading hours this week, though Friday's Juneteenth holiday shortens the schedule. For Nu, the path forward likely requires more than just buyback chatter—investors will be watching for evidence of stabilizing credit costs, steady margins, and sustainable growth in Brazil, Mexico, and eventually the U.S. without weighing on earnings.
