The market is anticipated to closely observe the Q3 earnings of a fintech giant, Nu Holdings. The company’s shares have surged by 88% this year, thanks to strong growth and accelerated profitability from Latin America’s largest digital bank. With shares trading at a 52-week high, expectations are mounting for the upcoming third-quarter earnings report, scheduled for release on November 13.
Warren Buffett’s Berkshire Hathaway identified potential in Nu Holdings, investing approximately $1 billion around its initial public offering in 2021. At that time, this investment stood out in Berkshire’s portfolio, which primarily included mature companies from developed markets. The value of Berkshire’s position in Nu Holdings has since increased to $1.7 billion, representing a 2.2% ownership stake in the company.
Nu Holdings has benefited as more customers use its platform as their primary banking account and engage with additional products. The company has effectively monetized its 105 million customers, marking a 25% increase over the past year in countries such as Brazil, Colombia, and Mexico. During Q2, average revenue per active customer rose by 30%, reaching $11.20 on a foreign exchange-neutral basis from last year. This was supported by an increase in customer deposits, which also facilitated a significant boost in lending activities. Impressively, Q2 revenue rose by 65%, while adjusted net income more than doubled from the previous year on an FX-neutral basis, driven by strong credit metrics.
Looking at the upcoming third-quarter, Wall Street estimates suggest that Nu Holdings will report revenue of $2.9 billion, representing a 39% increase from Q3 2023. The consensus predicts earnings per share of $0.11, a 57% rise from the previous year’s figure of $0.07. Meeting these expectations will be significant for the company, but insights on current economic conditions and future outlook into 2025 could influence the market reaction. Details about the loan portfolio, including delinquency ratios and net interest margin, will be important in assessing the macroeconomic stability of the region.
Nu Holdings is well-positioned to capitalize on the growth of the consumer class in Latin America and the still-large segment of the underbanked population, presenting the company with long-term opportunities. These factors, along with the growth outlook, somewhat justify Nu Holdings’ current forward price-to-earnings ratio, which stands at 36 times the full-year consensus EPS. This is a premium compared to other fintech leaders like Block and PayPal, and a discount compared to other banking disruptors like SoFi Technologies and Rocket Companies. Strong Q3 earnings from Nu Holdings could potentially drive further stock rally, providing some market precedents to support a higher valuation.
However, investing in any stock ahead of quarterly earnings reports entails uncertainty and potential volatility, especially if the results fall short of expectations. Despite these risks, many analysts maintain a positive outlook on Nu Holdings, anticipating benefits for investors focused on long-term prospects in this high-growth industry.
