SÃO PAULO – Nu Holdings (NYSE: NU) saw its shares decline 3.9% on Friday, as a surging US dollar put pressure on the digital bank's ability to maintain its streak of record quarterly profits. The stock closed at $14.30, erasing approximately $2.7 billion in market capitalization. Trading volume reached 79.13 million shares, slightly above the average daily turnover.
The Brazilian real weakened 0.66% to 5.196 per dollar after Federal Reserve Chair Kevin Warsh hinted at the possibility of further rate hikes. A stronger dollar typically draws capital away from emerging markets, and for Nu Holdings, which generates most of its earnings in Latin American currencies but reports in US dollars, unfavorable exchange rate movements can compress translated revenue and dampen investor appetite.
Record Quarter, Currency Headwinds
Despite the currency-related setback, Nu's core business continues to deliver robust growth. In the second quarter, gross revenue surged 39% year-over-year to $5.88 billion. Net profit reached an all-time high of $1.06 billion, surpassing the $967.2 million consensus estimate compiled by Reuters. This marks the first time the company has crossed the $1 billion quarterly profit threshold.
The risk-adjusted net interest margin expanded to 12.4%, up from 9.9% in the same period last year, reflecting improved asset yields and operational efficiency. Customer acquisition also remains strong, with the total client base growing to 139 million across Brazil, Mexico, and Colombia. Monthly activity levels held steady at 83.5%, offering significant cross-selling opportunities.
Credit Quality Concerns Persist
However, credit quality remains a key area of uncertainty. The proportion of loans more than 90 days past due increased by 35 basis points to 6.9% in the second quarter, according to a securities filing. While the cost of credit declined 9% from the previous quarter to $1.69 billion, it still stands 60% higher than a year ago, underscoring the elevated risk environment.
Analysts remain cautiously optimistic about Nu's prospects. The consensus price target among 22 analysts is $18.40, which implies a potential upside of approximately 29% from Friday's closing price. The average recommendation is Overweight. However, price targets vary widely, ranging from $10 to $23, reflecting the uncertainty surrounding currency movements and credit performance.
Market Context and Outlook
Nu Holdings' shares have been volatile in recent weeks, with the stock experiencing both sharp gains and losses following its earnings release. The company's ability to sustain its profit momentum will depend on several factors, including the trajectory of US interest rates, the stability of the Brazilian real, and the evolution of delinquency rates.
Investors are also watching whether Nu can continue to grow its credit portfolio without a corresponding surge in provisions. The company's risk-adjusted net interest margin improvement is encouraging, but the rising late-stage delinquency ratio suggests that credit stress may be building.
In the broader context, Nu Holdings operates in a highly competitive Latin American fintech market, where it competes with traditional banks and other digital players. Its strong customer base and cross-selling potential provide a competitive edge, but macroeconomic headwinds and currency volatility remain significant risks.
As the Federal Reserve's monetary policy path remains uncertain, emerging market assets like Nu are likely to face continued pressure. Investors will be closely monitoring upcoming economic data and central bank communications for clues about the future direction of interest rates and the dollar.
