On Thursday, Susquehanna maintained a Positive rating on Nu Holdings (NYSE: NYSE:NU) shares, commonly known as Nubank, and increased the price target to $18 from $16. The adjustment reflects the company's strategic expansion into Mexico and Colombia, markets that are expected to contribute to its total addressable market and net present value.
Nubank's foray into these new markets has been accompanied by a temporary dip in margins, as the average revenue per incremental customer account (ARPAC) in these regions is lower compared to Brazil. This is against the backdrop of consistent upfront investments, suggesting a short-term impact on profitability.
Despite these challenges, the firm views these developments as typical of a company's growth phase and remains confident in Nubank's ability to replicate its Brazilian success in new territories.
The company has reported robust growth in consumer loan originations, marking a 79% increase in foreign exchange neutral (FXN) terms compared to the previous quarter. This performance was balanced by a deliberate strategy to maintain the credit card IEP steady, optimizing the risk/reward profile for its PIX financing product.
Moreover, top-of-the-funnel non-performing loans (NPLs) experienced a seasonal net decrease, attributed to better-than-anticipated delinquencies and a shift towards more secured lending.
After accounting for new cloud and data costs, Nubank's cost to serve saw a modest rise of 2% in FXN terms, a significant reduction from the 24% increase witnessed last quarter. This demonstrates the company's continued operational leverage and efficiency in its business operations. Susquehanna's updated analysis and price target are based on extending the model duration to 2026. Further details and callback notes are available upon request from the firm.
In other recent news, Nu Holdings, commonly known as Nubank, reported robust third-quarter results with revenues reaching $2.94 billion, a substantial 56% year-over-year increase, surpassing the consensus estimate of $2.85 billion.
Earnings per share were in line with analyst predictions, registering at $0.11. The company's customer base saw significant growth, expanding by 5.2 million in Q3, marking a 23% year-over-year rise, and reaching a total of 109.7 million worldwide.
Moreover, Nubank's net income more than doubled year-over-year to $553.4 million, and an annualized return on equity (ROE) of 30%. The company's efficiency ratio also improved, dropping to 31.4%, a 300 basis point enhancement from the previous year. Nubank's international expansion efforts are bearing fruit, particularly in Mexico and Colombia, where customer bases grew to 8.9 million and 2 million respectively.
However, Itau BBA recently adjusted its stance on Nubank shares, shifting the rating from Outperform to Market Perform, and revised its price target for the company's shares to $15 from the previous $17. This change was due to concerns about an unexpected slowdown in revenue in Brazil's personal loans and card segments.
The firm's forecast for fiscal year 2025 net income has been reduced by 17% to $2.8 billion. Despite these developments, Nubank remains a significant player in the financial sector.
InvestingPro Insights
Recent data from InvestingPro aligns with Susquehanna's positive outlook on Nu Holdings. The company's market capitalization stands at $74.91 billion, reflecting investor confidence in its growth strategy. Nu Holdings has demonstrated impressive revenue growth, with a 76.44% increase in the most recent quarter, supporting the firm's view on the company's expansion efforts.
InvestingPro Tips highlight that Nu Holdings is trading near its 52-week high, with a strong return over the last three months. This aligns with Susquehanna's increased price target and positive rating. The company's profitability over the last twelve months, as noted by InvestingPro, further reinforces the firm's confidence in Nu Holdings' business model.
For investors seeking a deeper understanding of Nu Holdings' financial health and growth prospects, InvestingPro offers 10 additional tips, providing a comprehensive analysis to inform investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.