Nubank's Q1 Profit Rises 41% But Misses Estimates Amid Higher Credit Costs

The Bottom Line

• Nu Holdings ($NU) reported Q1 net income of US$ 871 million, a 41% year-over-year increase, but missed Bloomberg consensus estimates of US$ 936 million.
• The earnings miss was primarily driven by a 72% surge in credit costs, as the fintech expanded its credit portfolio by 40% to US$ 37.2 billion, including higher-risk lines.
• Despite increased provisions, the 90-day non-performing loan (NPL) ratio remained largely stable at 6.5% (vs. 6.4% YoY), and Mexican operations achieved profitability.

Nu Holdings ($NU), the parent company of digital bank Nubank, reported first-quarter net income below analyst expectations, primarily due to increased provisions for its growing credit portfolio. The company posted a net profit of US$ 871 million (R$ 4.96 billion) for Q1, a 41% increase year-over-year, as disclosed in a statement on Thursday. This figure fell short of the average analyst estimate of US$ 936 million (R$ 5.33 billion) compiled by Bloomberg, leading to a 2.9% decline in $NU shares to US$ 12.55 (R$ 71.45) in New York trading.

Credit Expansion and Rising Costs

Nubank's strategic focus on expanding its credit offerings led to a significant 40% year-over-year growth in its credit portfolio during Q1, reaching US$ 37.2 billion (R$ 211.84 billion). This aggressive expansion, however, was accompanied by a substantial 72% rise in credit costs compared to the same period last year. The company explicitly stated in its earnings report that it deliberately ventured into higher-risk credit lines, asserting confidence in its "improved" risk assessment and profitable credit granting models to manage the associated risks effectively.

Guilherme Lago, Nubank's Chief Financial Officer, emphasized the company's success in gaining market share in credit cards and personal loans across Brazil and Mexico, exceeding initial market expectations. He clarified that the expansion of the credit portfolio inherently requires increased upfront provisions, which, while prudent for risk management, can temporarily dampen short-term profitability metrics.

Credit Quality and Brazilian Market Dynamics

Despite the strategic pivot towards higher-risk segments, Nubank reported that the overall quality of its credit portfolio remained robust. The 90-day non-performing loan (NPL) ratio, a key indicator of asset quality, concluded the quarter at 6.5%, a marginal increase from 6.4% recorded a year prior. This stability is notable given Nubank's significant exposure to Brazilian consumers, particularly those in lower-income brackets, who are often more susceptible to the pressures of high indebtedness and elevated interest rates prevalent in the country. Lago reiterated that the company has not observed any material deterioration in its portfolio quality, suggesting effective risk management despite the challenging macroeconomic backdrop.

International Growth: Mexico Achieves Profitability

While Brazil continues to represent the largest portion of Nubank's credit business, Mexico has rapidly emerged as a critical growth engine. The company's Mexican operations achieved profitability during the quarter, marking a significant milestone after several periods of losses. This achievement underscores Nubank's accelerated investment strategy in one of Latin America's most competitive banking markets. The fintech faces intensifying competition in Mexico from new entrants such as Plata Card, founded by a former executive of a major Russian digital bank, and Revolut, both of which have recently launched comprehensive banking services in the country. Nubank's ability to reach breakeven in this environment signals strong execution and market penetration.

Future Expansion and Technological Advancements

Looking ahead, Nubank is also laying the groundwork for further expansion, including the initial stages of establishing a banking presence in the United States, having secured conditional approval earlier this year. This move signifies a long-term ambition to tap into the vast U.S. market. Concurrently, the company continues to prioritize investments in artificial intelligence (AI) capabilities. Nubank reported that its AI-powered functionalities are currently serving over 15 million monthly active users, highlighting its commitment to leveraging technology for enhanced customer experience and operational efficiency across its diverse markets.