I wanted to provide a summary of my analysis of NU’s Q124. I’m interested to see if others on this board have reached different conclusions of their Q1 performance. All in all I thought it was a very good quarter. Bright spots are Revenue growth, customer growth, efficiency ratio and active revenue per active customer and how successful the expansion into Mexico is going. Things to watch are drop in Brazil deposits, increase to 5% for 15 to 90 day Non Performing loans and drop in Risk Adjusted Net Interest Margin from Q42023.
Revenue - Better than expected. Consensus estimate was for $2.53B and they came in at $2.736B which was up 69% YoY and 14% QoQ.
EPS - As expected. Consensus was $0.08 and they came in at $0.08.
Net Income - $378.8M which represented growth of 167% YoY and 5% QoQ. The growth is still very rapid but YoY and QoQ numbers are down from past few quarters.
Number of Customers - 99.3M. Growth is 25.5% YoY and 5.75% QoQ which is right in line with prior quarters.
Deposits - the positives are that deposits are up 53% YoY coming in at $24.3B in Q124. the slightly negative news is that the cost of funding is up slightly and that deposits in Brazil dropped slightly QoQ. NU’s management said that there are seasonality considerations for Q1 and that the deposit decline in Brazil was lower than the historical drop. See chart:
Non Performing Loans - Risk is increasing. 15 - 90 day non performing loans jumped up to 5% from prior quarter 4.1%. 90+ day non performing loans increased slightly from 6.1 to 6.3%.
Risk Adjusted Net Interest Margin - Risk is increasing from prior quarter. The risk adjusted NIM decreased to 9.5% from 10.2% in prior quarter. NU’s leadership indicated that the primary reason was higher deposits in Mexico at a higher funding costs. Note at 9.5% they are still doing better than Q1 thru Q3 in 2023. It’s only a drop from Q423.
@stewaj1 , thanks for this summary. Looks like a great quarter to me!
I think growth in ARPAC and improving operating leverage are crucial to monitor to ensure my investment thesis in $NU remains intact beyond the greenfield phase.
Bert Hochfeld’s weekly newsletter, which came out today, provided an excellent summary of NU’s quarter. I recommend checking it out if you own NU or are thinking about it and have a subscription to Bert’s ticker target newsletter.
Interest-Earning Installments (basically buy now pay later) keeps growing rapidly while the revolving (traditional credit card balances) isn’t growing. I think this is a good thing on the whole.
If I had to guess, the main thing the market isn’t super excited about is that gross margin peeled back from Q4, seasonally.
Since GM overcame seasonality last year maybe the market was hoping they would again, but maybe GM is now more optimized, in which case seasonality would be noticeable going forward.
The main number that I still don’t know what to think about is their loan to deposit ratio – it was 35% last quarter and this quarter it was 40%. They say it’s common to see that much higher, but I don’t know how high I would love for them to push this. Not sure if those who know more (@Aphalite?) have thoughts on this. Here it is by quarter (most recent on the left – sorry to those who don’t like that!)
Anyway, still a lot to learn about this company, and I think the risks should be respected. I wouldn’t want an 8% or 10% position or more, as this company could easily be affected by events outside their control. But it’s a fun one to follow and learn about. In general I liked the quarter, so I decided to take it up to about ~3%.
Not all installment payments charge interest, a good portion of them are interest free especially if you choose the lower amount of payments. They offer to parcel the payments out at majority of my transactions using a credit card.
Quarter 4 is going to be seasonally bigger than other quarters in Brazil because Salary employees receive an extra months payment in December.
I have been recommended to use NU bank multiple times. I don’t use it because I wanted to go to a store to talk to people because my Portuguese was not the best and its easier in person than via a phone.
Brazil has already started to lower its interest rates. Its at 10.5% down from the peak of 13.75%
Looking ahead, we expect annualized gross margins in 2024 to normalize to similar levels of 2023 as our investments in Mexico and Colombia are offset by the margin expansions in Brazil. After that, we expect the expansion trend to resume and gross margin to gradually grow towards 50%.
So they are using their expansion into Mexico and Colombia is driving their margin down in 2024 but they expect it to get closer to 50 in the future.
Imo I really see the two as the same. The difference between the installment product and the revolving product is that the interest is imputed on installment, so you are collecting the interest as they pay, versus charging the interest monthly and then collecting it.
Additionally, there’s this bit in the disclosures:
" “Receivables - revolving” is related to the amounts due from customers that have not paid in full their credit card bill. Customers may request to convert these receivables into loans to be paid in installments. In accordance with Brazilian regulation, revolving balances that are outstanding for more than 2 months are mandatorily converted into fatura parcelada - a type of installment loan which is settled through the customer’s monthly credit card bills."
Either way, if payments stop, you’re writing off balances. There’s not less risk just because there’s conversions to installment.
GM dipped because they had to increase their allowance expenses. Allowance expense is booked when you estimate that your credit portfolio will have increased losses going forward, which they have disclosed clearly. I don’t see this as a bad thing really, it’s good that they’re reserving more loss allowance as they increase the risk of their portfolio.
The strategy seems to be take on more risky customers at higher rates and thus better revenue and income growth. There’s blowup risk here but it’s a good strategy so long as their customers continue to show the ability to pay their installments/monthly minimum payments. It’s a good thing on the up portion of the credit cycle
This is heavily regulated in the US, but I have no idea what the laws are in Brazil regarding capital ratios. For reference, in the US it has ranged from 80% pre mortgage crisis to >100% during the subprime frenzy, and currently most are around 60-70%
The environment is entirely different though, so much of deposits in US is non interest bearing, whereas rates are high in Brazil. I’m also not sure how volatile/flighty these deposits are - and if the mechanics/capital requirements of bank runs in the US applies to banks in Brazil. Would need a lot more research on this. (which I likely won’t do as I’m not interested in having a position in NU)
@drew1618t I am interested in this bit. Is this a truly interest free loan? Or is the interest “hidden” on the UI? For example, a $5000 loan is paid out over 36 months at $150 a month, for a total payment of $5400? Or does the borrower actually pay $138.89 per month?
I have seen both methods. When you pay with credit at majority of stores the prompt comes up with the number of payments you want to pay 1 through 12. They have a screen for how much the payment size would be for each of them. I always do 1 payment so I don’t stare at it for long periods of time but I have noticed that sometimes the payments equal the 1 time price and sometimes its more like in your example. I’m not sure if the store is covering the difference or not. Just my shopping experiences in Brazil.
I’m utilizing a saving account in Brazil as I look to purchase a house in Brazil and I’m receiving 10.5% in interest, which is the rate set by the Brazilian Central Bank. It is extremely easy to move the money out of the savings account. Most banks offer the same rates, so most Brazilians don’t choose banks based off savings account rates.
