Brazilian Fintech Giant Faces Investor Scrutiny Over Declining Net Interest Margins
Nu Holdings Ltd. (NYSE: NU), the Latin American fintech powerhouse, delivered a fourth-quarter earnings report that exceeded Wall Street expectations. However, despite the impressive revenue growth, shares of Nu tumbled 7.7% as investors reacted to a notable contraction in the company’s net interest margin (NIM).
Q4 2024 Financial Highlights:
- Revenue: $2.99 billion (vs. $2.74 billion consensus estimate)
- Net Income: $552.6 million (+85% YoY on FX-neutral basis)
- Annualized Return on Equity (ROE): 29%
- Net Interest Margin (NIM): 17.7% (-70 bps sequentially)
- Customer Growth: 4.5 million new customers, reaching 114.2 million (+22% YoY)
- Total Deposits: $28.9 billion (+55% YoY)
- Lending Portfolio: $6.1 billion (more than doubled YoY)
- Credit Card Portfolio: $14.6 billion (+28% YoY)
Why Did Nu Holdings Stock Decline?
Despite its robust top-line performance, Nu’s stock took a hit primarily due to concerns surrounding its declining net interest margins. The company’s NIM fell 70 basis points quarter-over-quarter to 17.7%, with a total contraction of 210 basis points over the past two quarters. The decline was attributed to:
- Foreign exchange volatility, particularly the 13% devaluation of the Brazilian real (BRL) in Q4.
- A shift in loan mix toward lower-risk products, which offer lower yields.
- The company’s strategic deposit expansion in Mexico and Colombia.
Bank of America Global Research analyst Mario Perry noted that Nu’s net income of $553 million remained flat compared to Q3, while ROE contracted by 150 basis points quarter-over-quarter. He pointed out that revenue generation slowed to a 2% quarter-over-quarter increase, the slowest pace in recent years. Additionally, Nu’s monthly average revenue per active customer (ARPAC) declined for the third consecutive quarter to $10.7, down from $11.4 in Q1 2024.
Customer Growth vs. Profitability Trade-Off
Nu Holdings continues to experience rapid expansion across Latin America, particularly in Mexico and Colombia, where it is investing heavily to acquire new customers. However, this aggressive growth strategy has resulted in a dip in the company’s monthly activity rate, which declined to 83.1% as expansion outside Brazil outpaced engagement levels in its home market.
On the positive side, asset quality improved due to the shift toward lower-risk products, which helped reduce the cost of risk (CoR). However, this was not sufficient to offset the impact of slower revenue growth, as risk-adjusted NIM dropped 60 basis points quarter-over-quarter to 9.5%, with a total decline of 150 basis points in the last two quarters.
Analyst Take: What’s Next for NU Stock?
Despite concerns over margin contraction, Nu Holdings remains a dominant force in the Latin American fintech sector. The company’s long-term growth potential, bolstered by a rapidly expanding customer base and a diversified financial services portfolio, positions it as a key player in the region.
BofA’s Perry maintained a Neutral rating on the stock with a $14.00 price target, signaling that while Nu has strong fundamentals, margin pressures and FX volatility could continue to weigh on near-term stock performance.
Final Thoughts
Nu Holdings’ Q4 results highlight the company’s impressive revenue growth and customer expansion, but investors remain cautious due to NIM compression and foreign exchange risks. As Nu continues to scale across Latin America, the balance between growth and profitability will be a key factor in determining its stock trajectory.
With fintech disruption accelerating in emerging markets, will Nu Holdings overcome its margin challenges and sustain its upward momentum? Investors will be closely watching the company’s next moves.
