The market is preparing to closely monitor the third-quarter earnings report from a major fintech company, Nu Holdings. This firm, recognized as Latin America’s largest digital bank, has seen its shares surge by 88% this year, buoyed by significant growth and increased profitability. With its stock currently at a 52-week high, anticipation is building around the earnings report for the period ending September 30, which is scheduled for release on November 13.
Renowned investor Warren Buffett identified the potential in Nu Holdings when Berkshire Hathaway became an investor around the time of the company’s initial public offering in 2021. The $1 billion investment marked a notable departure from Berkshire’s tradition of investing primarily in more mature companies from developed markets. Over the past three years, the value of Berkshire Hathaway’s stake in Nu Holdings has risen to $1.7 billion, equating to a 2.2% ownership in the company. This development highlights Nu Holdings’ successful market strategy and its ability to exceed expectations.
Nu Holdings is experiencing growth as it becomes a primary banking option for customers, who are increasingly engaging with the platform by adopting additional products. The firm’s financial results have been positive, with a focus on monetizing its 105 million-strong customer base, which has expanded by 25% over the last year in markets such as Brazil, Colombia, and Mexico. In the most recent second quarter, ending June 30, the average revenue per active customer reached $11.20, marking a 30% increase on a foreign exchange-neutral basis compared to the previous year. This boost in customer deposits as a low-cost funding source facilitated increased lending activities, with sound credit metrics driving a 65% rise in quarterly revenue. Furthermore, adjusted net income more than doubled compared to the same period last year on an FX-neutral basis.
As Nu Holdings continues on a successful trajectory, the upcoming third-quarter earnings report is of keen interest to the market, seeking further momentum in core indicators to confirm the firm’s earnings trend.
In preparation for the third-quarter report, Wall Street estimates indicate that Nu Holdings’ revenue will reach $2.9 billion, reflecting a 39% rise from the previous third quarter. The consensus on earnings per share is set at $0.11, a 57% increase from the $0.07 reported last year. Meeting or surpassing these expectations is crucial, although the market may place greater weight on management’s commentary about current conditions and the company’s future outlook into 2025. Specifics regarding the loan portfolio, including delinquency rates and net interest margins, will be pivotal in assessing the region’s macroeconomic resilience.
Nu Holdings is strategically positioned to capitalize on the favorable trends associated with an expanding consumer class in Latin America and the considerable untapped banking population. This backdrop suggests a prolonged opportunity for growth. Consequently, the current valuation, with shares trading at 36 times the full-year consensus earnings per share as a forward P/E ratio, can be justified. This valuation stands as a premium compared to fintech leaders like Block or PayPal but is at a discount when compared to financial disruptors like SoFi Technologies and Rocket Companies.
Strong third-quarter earnings from Nu Holdings might serve as a catalyst for further stock appreciation, with historical precedents indicating the potential to sustain a higher valuation.
Investors considering Nu Holdings should be cautious when investing prior to a quarterly earnings report, as volatility could arise from any unexpected results. However, despite these risks, Nu Holdings remains an attractive prospect for investment, with growth potential extending into 2025 and beyond. Long-term investors focusing on the broader market trends and the company’s position within the high-growth fintech sector should find rewards in maintaining their investment.
Dan Victor, the article’s author, holds no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway, Block, and PayPal, while recommending Nu Holdings.
