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Nu Holdings Stock Selloff Explained - Buy More NU Shares?
NUNu .(NU) ZACKS·2025-02-24 21:06

Core Viewpoint - Nu Holdings Ltd.'s shares dropped 18.9% following disappointing fourth-quarter results, raising questions about whether this decline represents an overreaction and a potential buying opportunity [1] Financial Performance - NU's fourth-quarter earnings were 0.12pershare,meetingWallStreetexpectations,butrevenuesof0.12 per share, meeting Wall Street expectations, but revenues of 2.99 billion fell short of the 3.17billionforecast[1]−Thenetinterestmargin(NIM)decreasedby70basispointssequentiallyinthefourthquarter,attributedtoFXvolatilityandincreasedfundingcostsinColombiaandMexico[2]−Year−over−year,NIMincreasedby573.17 billion forecast [1] - The net interest margin (NIM) decreased by 70 basis points sequentially in the fourth quarter, attributed to FX volatility and increased funding costs in Colombia and Mexico [2] - Year-over-year, NIM increased by 57%, but this growth was lower than the previous quarters' YoY increases of 63%, 77%, and 93% [2] Operational Efficiency - Despite the decline in NIM, NU's efficiency ratio improved to 29.9%, up 150 basis points sequentially and over 610 basis points from the previous year, highlighting the advantages of its digital business model [3] Customer Growth - NU's revenues grew by 58% YoY to 11.51 billion on an FX-neutral basis, driven by an increase in its customer base, which reached 114.2 million globally, a 22% increase YoY [4] - NU is now the third-largest financial institution in Brazil, with over 10 million customers in Mexico and 2.5 million in Colombia, reinforcing its position in the digital financial services market [4] Risk Management - The 15-90 non-performing loan (NPL) ratio decreased by 30 basis points to 4.1% in the fourth quarter, indicating a lower risk profile and more secure lending practices [5] Investment Outlook - Despite the recent share price decline, factors such as improved efficiency, expansion in Latin America, and a favorable loan environment suggest potential for future growth [6] - NU's return on equity (ROE) stands at 30.4%, significantly higher than the industry average of 3.6%, indicating robust profitability [6] - New investors may consider the current dip as an opportunity to buy shares at a discounted price, while risk-averse investors might prefer a cautious approach due to currency fluctuations impacting financial statements [8]