Nu Holdings Ltd. (NYSE: NU) experienced a sharp selloff on Friday, with shares closing down 3.9% at $14.30. The decline erased approximately $2.8 billion in market capitalization, as trading volume reached 79.1 million shares—3% above the 65-day average. The broader financial-services sector remained nearly flat, indicating that the drop was company-specific rather than a reflection of broader market sentiment, according to WSJ market data.
The selloff highlights a growing tension between Nu's impressive earnings growth and its deteriorating credit quality. The digital bank reported record second-quarter net income of $1.1 billion, a 49% increase year-over-year on an FX-neutral basis. However, the 90-day-plus delinquency ratio rose by 35 basis points sequentially to 6.9%, raising concerns among investors about the sustainability of its credit expansion.
Despite the credit concerns, Nu's revenue momentum remains robust. Gross revenue reached nearly $5.9 billion, up 39% year-over-year, while net interest margin climbed 180 basis points to 22.9%. The risk-adjusted margin also improved significantly, rising to 12.4% from 9.5% in the prior quarter, providing some buffer against potential loan losses.
The company's credit portfolio expanded 37% year-over-year to $39.4 billion, supported by strong deposit growth of 18% to $45.3 billion. This funding cushion offers Nu flexibility as it scales lending operations. Near-term stress indicators have improved, with loans 15 to 90 days past due falling 16 basis points to 4.8%, and the cost of credit declining 9% from the first quarter.
However, older arrears are moving in the opposite direction. The 6.9% late-stage delinquency ratio is particularly significant because it captures weaker borrowers migrating through the loan book, signaling potential future losses. Analysts note that this trend could pressure profitability if it continues.
Customer growth remains a bright spot, with Nu adding four million new customers during the quarter, bringing its total to 139 million. Average monthly revenue per active customer held steady near $17, with customer activity at 83.5%. This strong engagement suggests that Nu's core business remains healthy despite the credit challenges.
At Friday's close, Nu shares traded at approximately 16.4 times the consensus 2026 earnings estimate of $0.87 per share. The multiple drops to 12.7 times the 2027 estimate of $1.13, suggesting that the market is pricing in some downside risk. Wall Street remains largely optimistic, with 17 of 22 tracked analysts rating the stock a Buy, three a Hold, and two an Underweight. The average price target stands at $18.40, implying a potential upside of 28.7% from current levels.
The next major test for Nu will be its third-quarter earnings report, expected on November 12. Consensus estimates call for earnings of $0.23 per share, up slightly from $0.22 in the second quarter. Investors will be closely watching whether the delinquency trend continues to worsen and whether Nu can maintain its margin expansion in the face of rising credit costs.
Key risks include potential changes in Brazilian interest rates, currency fluctuations, and unemployment levels, which can quickly alter repayment behavior. Additionally, faster-than-expected loan growth could increase provisions before customer revenue catches up, further impacting profitability.
Friday's decline resets the stock's valuation but does not resolve the underlying debate: can Nu's expanding margins continue to absorb the rising stock of late-stage delinquencies? The answer will determine whether the current selloff represents a buying opportunity or a warning sign.
