(Bloomberg) -- Shares of Nu Holdings Ltd. slid after releasing third quarter earnings as analysts raised questions over revenue growth and pre-tax results, despite a beat on net income.
For the three months ended Sept. 30, net income more than doubled from a year earlier to $553.4 million, the Sao Paulo-based company said Wednesday in a statement. That surpassed the $495 million average estimate by analysts in a Bloomberg survey. Return on equity was 30%, also beating expectations, while revenue was largely in-line at $2.9 billion.
Those strong results, however, were overshadowed by misses on metrics including net-interest income, net-interest margin, provisions and a lower tax rate that bolstered the bottom-line figure.
The quarter “will trigger negative earnings revisions and pauses in multiple expansion,” Pedro Leduc, an analyst at Itau BBA, said in a note, where he downgraded the stock to market-perform and lowered the price target to $15. Nu’s key performance indicators “and credit quality are fine, but the quarter brought a revenue deceleration component that we did not expect.”
Shares fell as much as 10.5% before paring losses to close down 2.9% at $15.19. The stock, which closed at a record on Nov. 11, has rallied 82% year-to-date.
As Jefferies put it in a note, “there is a bit for everyone from these results.”
Earlier this year, Nu eclipsed Brazil’s Itau Unibanco Holding SA as Latin America’s most valuable financial institution. It preserved that title with a market value of about $73 billion. The digital bank, which operates in Brazil, Mexico and Colombia, added 5.3 million customers in the quarter, boosting its total to almost 110 million at the end of September. Deposits surged 60% to $28.3 billion.
Part of the pressure on net-income interest and margin came from the higher cost of funding in its newer markets of Mexico and Colombia and lower yields on securitized loans in Brazil.
It was the first quarter-on-quarter decrease in risk adjusted NII since 2021, JPMorgan Chase & Co. analysts highlighted in a note.
Among 23 analysts surveyed by Bloomberg, the stock has 11 buy recommendations, 10 holds and two sells with a 12-month price target of $15.19.
“After the strong rally in Nu’s shares, we do not see this quarterly results as a trigger to another round of stock appreciation,” XP Research analyst Bernardo Guttmann said in a note. “We reiterate our Neutral rating.”
On an analyst call, chief financial officer Guilherme Lago said the bank expects to see risk-adjusted margins expanding again as it lowers deposit yields paid in Mexico and Colombia that were higher than market competitors, and increases loan-to-deposit ratios.
The fintech’s credit portfolio rose to $20.9 billion, with its share of personal loans again growing at a faster pace than credit cards.
Loans 15 to 90 days overdue fell 10 basis points to 4.4% while those delinquent more than 90 days rose 20 basis points to 7.2%. While some Wall Street analysts have flagged rising non-performing loans as a concern, CFO Lago said the figures were within expectations.
The 15-to-90 day figures are “a much better representation of the asset quality of the book that we have,” Lago said in an interview.
“We’d characterize the results as ‘mixed’ and paint the print as messier than usual with the combination of higher credit origination activity and a downtick in NIM (among many other factors) driving the need for extra explanation,” KeyBanc Capital Markets analysts led by Alex Markgraff wrote in a note, reiterating its overweight recommendation.
International Expansion
Provisions for loan losses rose 6% to $774.1 million in the third quarter, after declining in the preceding three-month period. Nu recorded a one-time expense of $48 million associated with changes to its Nucoin program in Brazil.
The opportunity for the company to grow in new areas such as telecom, retail and travel services are immense, founder and Chief Executive Officer David Velez said in the conference call with analysts. Nu unveiled NuCel recently where it has a revenue-sharing agreement with telecom provider Claro.
“We’re just getting started,” he said.
Deposits rose to $4 billion in Mexico, the most promising growth market for Nu and other Latin America fintechs. Nu is “way ahead of expectations” in international operations, the executive said.
“Our expansion into Mexico and Colombia continues to generate impressive results,” Velez said in a statement. “We are preparing ourselves to consolidate Nu as the world’s leading digital services platform, going beyond financial services.”
--With assistance from Joel Leon and Leda Alvim.
(Updates with share trading in fifth paragraph.)
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