NU reported 24Q3 earning

Investment Analysis Clubs Saul’s Investing Discussions
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NuBank just reported mixed Q3 results. Revenue growth had a significant slowdown, even in FXN basis, while customer growth was solid and EPS growth exceeded expectation.

The good things:

  1. Total customer count increased 5.2 million to reach 109.7 million. This was on par with the net adds from previous few quarters.
  2. GAAP Net Income increased 82.64% to $553.4 million. On FXN basis, the YoY growth would have been 107.34%.

The bad things:

  1. Revenue growth had a significant slow down. The numbers for the last few quarters have been 65.80% → 69.02% → 52.45% → 37.74% (24Q3). Even on a FXN basis, they are 56.95% → 64.24% → 65% → 56% (24Q3). So still a considerable slowdown from the previous two quarters.
  2. ARPAC has been trending down for the last two quarters, with the numbers in 2024 have been 11.4 → 11.2 → 11 (Q3). The management had a legit explanation for this though.

The dynamics of ARPAC in this slide are affected by the acceleration of Nu’s customer base in Mexico and, more recently, in Colombia. While deposits strategy in these new geos may attract customers who initially engage with the Cuenta product only, a product that generates relatively low ARPAC levels, Nu is very confident in the long-term results that this growth strategy is expected to yield for the Company, as seen in Brazil for almost a decade now.

  1. The credit card income has been almost flat for the last 3 quarters ($983.6 → $985.1 → $966.7 (Q3) million) , according to the detailed financial statements. Here’s the management explanation from the report:

Net interest income, or NII, increased by 63% YoY FXN, reaching US$1.7 billion . Growth was driven by sustained expansion of Nu’s credit card and lending portfolios, collectively boosting NII and net interest margin (NIM) on an annual basis. The slowdown in growth QoQ was mainly driven by the combination of three factors: (i) yields on the credit card portfolio declined reflecting an improved customer and product risk profile; (ii) lending yields declined as secured loans continue to grow; and (iii) funding costs in Mexico and Colombia continue pressured, in line with Nu’s yield strategy to quickly ramp-up deposit growth in new geos.

Note that, although the Net interest income is increased by 63% here, it is primarily driven by the growth of the lending portion ($566.9 → $656.0 → $703.0 → $787.1 million).

Full report can be found on Results Center - Nubank IR.

NU is currently my 3rd largest position at 13%. Overall, I think the report was solid. But I do have concerns about the credit card business growth. I’ll read the transcripts to gather more information.

Cheers,
Luffy

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I personally am pretty surprised at how large the sell-off was, simply because of how the market has reacted to some other companies on this board. But I’ve been trying to look for trends during this earnings season and I can’t seem to figure out the movements.

Revenue growth did slow down but on FXN, that is still 56% growth. But maybe the market is focused much more on the actuals and not FXN.

Either way, they increased GAAP Net Income by over 18% which is huge. Other companies who surged in Net Income had CRAZY positive moves in stock price. Take Axon for example, who slipped on all topline growth metrics, but saw a 21% increase in Net Income and the stock popped over 40%. APP saw Net Income increase around 40% (nuts) but also slipped on revenue growth, and the stock has very nearly doubled.

I’m probably trying to way oversimplify but trying to find some trends and so far it’s been a little all over the place this earnings season. And every price movement has been extreme. Thoughts, anyone? I’m sure there’s a lot I’m missing.

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Does anyone have a projection on the BRL - US $ relationship over the next few months. Further detraction will offset the positive stock price impact of expected revenue growth next quarter. I am considering further trimming as a result.

Gray

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Brazilian economists think the BRL is going to continue to weaken to the US dollar. There are predictions that it will drop 25% again next year.

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I have owned MELI for over 10 years and never did not trade in our out. I have a greater than 10x return but have sold small amounts to maintain a comfortable percent of my portfolio. And I have it in my families accounts. I have always ignored the MELI dollar currency conversions, rather focus just on local currency growth numbers and local measurements like customer additions or GMV growth. I hold a handful of stocks as a foundation and the remaining 70% are high growth, high risk stocks. MELI is one of my foundation stocks.

I view NU as a likely foundation stock for the same reasons as MELI. I recognize this is Saul’s board where folks jump at any little news on the discussed high risk stocks (and rightfully so). But I do not view NU as a high risk, just high growth will a long term slight trend down. Revenue growth in local currency will not suddenly come up/down but a sudden drop/rise in local currency conversion is very definite. Similarly, NU has proven that it can prudently manage the growth, multiple financial services, and loan loss ratios. And the market push into Mexico and Columbia appear very methodical and prudent into new green fields. Yes, there will be ups and downs. For me, I’ll just pinch my nose on the currency issues as long as the thesis maintains.

I see this NU price pullback as a buy opportunity for another long term foundation stock. I’ll just balance NU a bit with MELI because they have an overlapping geographical market.

-zane

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That’s a helpful perspective, as I’m often frustrated with the short term reactions, especially with such strong company performance despite the macro conditions.

I saw on 12/5 NU announced a new pilot program for Colombia called NuControl Credit Card. According to the announcement, only 35% of Colombians have access to a credit product. Hopefully this helps to accelerate their adoption there.

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On the negative side

  • Over past 3 quarters the NU revenue growth trend in existing markets has been very negative - 17%>3%>2%
  • The BRL to US $ is projected to retract by 20% for 2025,
  • Brazilian economy is slumping.’

On the positive side

  • NU has entered new markets in need of their services.
  • Significant value exists with a PEG of under .2

With these issues I have trimmed by position from 5% to 2% awaiting data from new markets. I am maintaining a position, because of the history of quality management decisions and it seems the value is establishing a pricing floor. I am concerned, however, because the weak BRL will eat up the first 20% of a potential price run up, so I be quick to exit on further deterioration.

Gray

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Owning the stock of a company that has a long term tail of growth that exceeds GDP for decades (revenue and profits) is the best way to create generational wealth, IMO.

The hard part is identifying the companies and holding their stock for decades while the story plays out. This is especially true for companies that operate in developing countries.

I like NU. I like the CEO and operating model. I own NU stock and continue to hold throughout this down period. But, NU will never be anything more than a small position in my portfolio. I will not accept the operational and political risk of making a company that operates predominantly in South America and Mexico anything more than a small position in my portfolio. This doesn’t mean NU won’t be a huge investment success, it just means there are a lot of types of risk and this is one that I’m unwilling to take beyond a nominal amount.

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It looks like Brazil’s currency is “cratering” at this time. Again. When cash becomes trash it never bodes well for the banks.

Here is a longish article on the latest/current economic crisis in Brazil.

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While I have greatly pared down my holdings to prepare for retirement life, $NU is one of just two positions I still hold. ($IOT is the other)

While my position was up over 108% in November, it then took a nosedive because people panicked about Brazil’s economy. As of this morning, my position is up just over 30%. And they had what I thought was a great earnings report.

And yet, while the stock price was tanking, this bit of news came across Businesswire on Dec. 16:
https://www.businesswire.com/news/home/20241216641095/en/Nubank-Announces-Investment-in-Tyme-Group-a-Digital-Bank-With-Operations-in-South-Africa-and-the-Philippines

It’s an article about Nubank leading a funding round for Tyme Group, which the article describes this way:

Founded in 2019 in South Africa, Tyme Group operates under a hybrid model that combines a customer-centric digital platform with physical experiences, delivered in partnership with nationwide retailers through digital kiosks and bank ambassadors. With the objective of offering an affordable banking solution and maintaining a lower cost structure than traditional banks, Tyme Group has reached more than 15 million customers. The bank specializes in emerging markets populations and, besides South Africa and the Philippines, it has a Global Headquarters in Singapore and a development hub in Vietnam, where it plans to open its next operation.

And here’s what NU had to say about leading the round:

"Since the beginning of Nubank, we have believed that the future of financial services globally is of digitally-native companies. We have met dozens of teams across different geographies, and we think that Tyme Group is extremely well-positioned to be one of the digital bank leaders in Africa and South East Asia. We are excited to work with Tyme to share many of our learnings of scaling this model to hundreds of millions of customers," says David Vélez, founder and CEO of Nubank.

Is NU thinking ahead to a possible acquisition? Or to some other kind of partnership? Entirely possible. But at the very least, David Vélez is thinking deeply about emerging markets outside of LATAM. His vision is large.

If I hadn’t already sold the truck, I would be backing up the truck to load up even more on $NU in this selloff, a position I will keep until absolute necessity makes me sell–and hope that doesn’t happen in the midst of the market’s pearl-clutching about some aspect of Brazil’s economy.

As I have watched the share price tank because of the macro in Brazil, I kept remembering a section from Jon Fortt’s interview with David Vélez a year ago. Here’s the link, if you haven’t seen it, and the part I’m remembering comes almost at the end, starting at about minute 51:

Here’s the nut of it:

The only environment we have seen since we started has been of adversity…About 90% of our life as a company has been about death valleys consistently and macro crises or recession in Brazil and impeachments and corruption consistently. So, we as a company only know adversity.

And, in a way, that’s good because when the environment changes, we know how to operate in all those environments. In emerging markets, you have to learn to navigate through the ups and downs. There is no other way.

That, I think, has given us a lot of resilience as a company, a lot of trust as a company. A crisis comes in, and we know how to support it; we know how to face it; and I think that makes us, at the end of the day, a great execution machine.

This SA article from today makes the case for NU, and, at the stock price right now ($10.30 as I write), it’s an absolute steal:

JabbokRiver

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Thanks for sharing the article on seeking alpha, JabbokRiver42. It was very informative. I bought more shares after reading it. I thought the author’s analysis was spot on and did a good job explaining the credit portfolio’s quality.

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