NU Deep Dive Part 2

Financials, Opportunities, Valuation

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Introduction

This is Part 2 of my Deep Dive on NU. You can see Part 1 here:

NU Deep Dive Part 1

Outline

1. Introduction (Part 1)

2. Business Overview (Part 1)

3. LatAm (Part 1)

4. Competitive Advantage (Part 1)

5. Risks (Part 1)

6. Financials (Part 2)

7. Opportunities (Part 2)

8. Valuation (Part 2)

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Financials⬇️

Demand:

NU’s growth is very strong, yet naturally slowing as will always happen as companies grow in size. However, growth still remains impressive, and growth rates are actually estimated to increase again through to 2027.

Here’s a breakdown of NU’s demand (looking at customers, active users, new customers etc).

Customer count growth is currently fastest in Mexico where NU reached 10 million customers in 2024 which is a 91% increase on 2023. Growth in Colombia is also rapid, but they’ve only just hit 2.5 million customers there so the bulk (~13-15 million) of the customers added throughout 2024 were from Brazil.

Total revenues hit $5.51 billion in FY24 and $1.44 billion in Q4 24 (although this was massively affected by the BRL). Revenue is growing fastest in Colombia, then Mexico, and slowest in Brazil though this is of course expected with the law of large numbers.

Looking ahead, over the next 3 years or so interest rates will / should come down which will cause headwinds because of reduced net interest income however the shift to deposit funded loans will likely offset any reduced NIM and also they should be able to significantly increase loan originations so all in all it this environment should be a benefit for NU. Whatever happens, NU management have a plan and can lean into different strategies.

Profitability:

As you can see below, net income margin expansion has been strong.

Key operating expenses include customer support, technology, marketing, and G&A expenses, all of which are far below traditional incumbents. Keeping these expenses fairly stable is key to this whole low cost business model that is essentially the single largest advantage over traditional incumbents. These costs will continue to grow slightly with more data, infrastructure, and scale, but they’ll grow at far slower rates than revenue will creating some nice operating leverage.

Balance Sheet:

“Now, looking ahead to the mid and long-term profiles, we remain confident that the balance sheet optimization will be the primary driver of future NIMs.” - Guilherme Lago

This sums up the balance sheet quite well. You’ve got:

• Low debt at $1.3B

• Strong cash and cash equivalents at $6.9B

• A rapidly growing loan portfolio at $22.2B

There’s not many banks in the region with a balance sheet as good as this.

Share dilution isn’t too bad either at 3.4% over the last 3 years. Not great but not terrible.

Let’s get into the crux of it: 👇