Q3 2024 Earnings Summary
- Expansion into new verticals beyond financial services, such as telecom with NuCel, travel, and marketplace, leveraging their large customer base of over 100 million Brazilian customers to cross-sell efficiently and enhance customer loyalty. This diversification is expected to provide substantial revenue growth and reduce reliance on credit revenues.
- Strong growth in Mexico and Colombia, with deposits increasing at a faster pace than expected, leading to cross-selling opportunities in credit cards and personal loans. In Mexico, $NU has become a top 10 player in both credit cards and deposits within 5 years, and there is potential for Mexico to become as big as Brazil for $NU. ,
- Continued market share gains in the core credit card business in Brazil, with purchase volume growing by 24% over the past 12 months, twice the industry's growth rate, and credit card receivables increasing by 32%, which is 3 to 4 times the industry's increase. This demonstrates $NU's strong competitive position and growth potential in the market.
- Compression in risk-adjusted net interest margins due to shift towards secured lending: As Nu Holdings increases its mix of secured loans, such as payroll loans with regulated prices, there is a potential for margins to decline. Secured lending typically offers lower yields compared to unsecured products like credit cards. This shift could impact profitability in the short term as the company moves away from higher-yielding credit card lending.
- Rising delinquency rates in the credit card portfolio: The credit card Stage 3 loans have increased from 9.1% to 9.8%, indicating a rise in delinquency rates. This trend suggests potential asset quality concerns in the credit card segment, which could lead to higher provisions and negatively affect future earnings.
- Macroeconomic deterioration may require higher provisions: Deteriorating macroeconomic conditions, including higher SELIC rate estimates, could necessitate Nu Holdings to increase its provisions under the expected credit loss model. An increase in provisions would impact profitability, and there is a risk that the company may need to reinforce provisions in upcoming periods due to the challenging economic environment.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
International Expansion | Consistently highlighted across Q4 2023, Q1 2024 and Q2 2024 with strong customer growth, robust deposit and credit expansion, and market opportunity in Mexico and Colombia | Q3 2024 emphasized record customer additions, refined deposit yield strategies, accelerated loan growth, and a clear focus on long‐term market opportunity in both Mexico and Colombia | Steady, positive momentum with more refined deposit and credit strategies enhancing long‑term positioning |
Growth in Secured Lending | Mentioned in Q1 2024 with early-stage expansion and product ramp-up, and in Q4 2023 with initial product introductions | Q3 2024 reported 97% YoY growth, introduced additional secured loan products, and signaled expectations of margin expansion through optimized loan mix | Consistent expansion with an evolving focus on risk-adjusted returns and diversification of credit products |
Credit Card Market Share Growth | Evidenced in Q1 2024 and Q4 2023 through robust portfolio expansion and market share gains (reaching 15% in Q1 2024 and growth in purchase volume) | Q3 2024 showed significant improvements with a 300+ basis point increase in market share, driven by higher purchase volumes and stabilizing active card counts | Ongoing strong momentum with continuously improving market share metrics and customer activity |
Deposit Growth Strategy and Funding Optimization | Discussed in Q4 2023 and Q1/Q2 2024 with strong deposit accruals in Mexico and Colombia, growing deposit bases, and early steps in optimizing the loan-to-deposit ratio | Q3 2024 detailed strategic yield reductions (e.g. from 15% to 12.5% in Mexico) and active rebalancing of funding through deposit growth to optimize funding costs and expand NIM potential | A steady, evolving strategy moving from rapid deposit growth to more refined yield and cost optimization |
Net Interest Margin Dynamics | Q1 and Q2 2024 reported record NIM highs (up to 19.8%) and consistent balance sheet optimization, while Q4 2023 noted mixed signals from collection strategies | Q3 2024 witnessed a temporary compression (−140 basis points, decreased to 18.4%) attributed to loan mix shifts and higher funding costs, though management remains optimistic for rebound driven by improved LDRs and liability repricing | Short‑term contraction amid product mix shifts, counterbalanced by long‑term expansion expectations from balance sheet adjustments |
Asset Quality and Credit Risk Concerns | Q1 2024 saw seasonal increases in early-stage delinquencies; Q4 2023 reported stable asset quality with managed NPL ratios and robust recovery measures | Q3 2024 reported slight increases in 90+ day NPLs and stage 3 loans, but these were offset by a strategic shift toward secured lending and better-than-expected early delinquency performance | Cautious management of increased credit risk as the portfolio expands, with stable risk controls in place |
Expansion into New Verticals | Not mentioned in Q4 2023, Q1 2024, or Q2 2024 | Q3 2024 introduced initiatives such as NuCel (telecom), NuTravel, and NuMarketplace as part of a diversification effort | A new strategic initiative aimed at revenue diversification and ecosystem expansion beyond traditional financial services |
Cross-selling and Diversification Strategies | Q4 2023, Q1 2024, and Q2 2024 consistently highlighted growing product penetration (with average products per customer rising and ARPAC improvements) and broad geographic as well as SME diversification | Q3 2024 reaffirmed effective cross-selling with average products per active customer now at 4 and continued ARPAC growth, reinforcing their role as the primary banking partner | Steady and expanding, reinforcing customer engagement and diversified revenue streams |
Macroeconomic Headwinds and Provisioning Risks | Q4 2023 discussed cautious provisioning in a challenging backdrop, while earlier periods touched on credit quality in the context of portfolio growth | Q3 2024 integrated macroeconomic scenarios into its provisioning model and emphasized that increased risks (e.g. from secured loan expansion) are offset by improved asset quality and manageable provision increases | A cautious but managed approach to macro risks, with confidence in risk models and offsetting strategies |
Operational Cost Pressures and Increased Expenses | Q4 2023 noted higher marketing and cloud expenses impacting the efficiency ratio; Q1 2024 highlighted low cost-to-serve and improved efficiency ratios compared to incumbents | Q3 2024 reported modest one‑off FX and marketing expense impacts with a low cost-to-serve maintained at $0.80 and an improved efficiency ratio despite these pressures | Consistently focused on cost efficiency, with short‑term expense pressures being effectively managed without derailing overall operational leverage |
Reduced Transparency in Renegotiated Loan Reporting | Q1 2024 disclosed that renegotiated loans (about 10% of the portfolio) would now be reported annually rather than quarterly | Q3 2024 did not include new details on this topic | No new discussion; the reporting frequency switch from quarterly to annual in Q1 2024 remains in effect |
Elevated Share-based Compensation and Dilution Risks | Q1 2024 discussed increases driven by headcount, performance recognition, and share price effects, with dilution risks being managed and positioned in the industry’s bottom quartile | Not mentioned in Q3 2024 | Previously addressed with favorable mitigation; no new concerns raised in the current period |
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Declining NIM and Profitability
Q: How will the shift to secured lending impact profitability and NIM?
A: As we add secured lending to our portfolio, we expect NIMs to expand going forward, not contract. While secured loans have lower yields, they allow us to utilize idle deposits currently sitting in treasury bonds, improving our loan-to-deposit ratio from about 30–35%. The mix change may reduce average yields, but we're not moving away from profitable unsecured products like credit cards, which still offer returns on equity above 30%. Additionally, higher funding costs in Mexico and Colombia have temporarily compressed NIMs, but we plan to lower deposit rates there, which should enhance NIMs. -
Provisioning Amid Strong Loan Growth
Q: Why didn't provisions grow as much as personal loans this quarter?
A: Despite the 20% QoQ growth in personal loans, provisions grew only 6% due to the accelerated growth of secured lending, which carries very low risk and hence lower coverage ratios. Even in unsecured lending, we observed slightly better asset quality than expected. Our provisioning reflects the mix and performance of assets, and while we consider macroeconomic factors like higher SELIC rates, the nature of our assets is the dominant factor. -
Mexico's Growth Potential
Q: Can Mexico become as significant as Brazil for Nubank?
A: Mexico holds the potential to be another Brazil for us. With higher income per capita and lower banking penetration, it's both a challenge and an opportunity. We've become a top 10 player in credit cards and deposits in just five years. While it may take longer to achieve Brazil-level market share due to the complexity of serving the unbanked, we believe Mexico will significantly contribute to our results in the coming years. -
Asset Quality Trends
Q: What's behind the increase in credit card Stage 3 loans?
A: The rise in Stage 3 loans from 9.1% to 9.8% aligns with trends in 90+ day delinquencies. However, late-stage delinquency formations actually declined by 40 to 60 basis points this quarter. Our asset quality remains stable, with offsetting factors like increased secured lending and tactical adjustments balancing out expansions in credit card lending. -
NIM Outlook and Drivers
Q: What will drive NIM improvement going forward?
A: NIM expansion will come from deploying excess deposits into credit assets, both secured and unsecured, thereby increasing our loan-to-deposit ratio. In Brazil, we anticipate continued growth in the asset side, with the lending portfolio growing 90–100% YoY. In Mexico and Colombia, as we strengthen our credit underwriting, we expect the loan books to expand significantly, further enhancing NIMs. -
PIX Financing Strategy
Q: Are you slowing PIX financing due to asset quality concerns?
A: We remain excited about PIX financing, with enormous demand and strong unit economics. We have intentionally slowed eligibility expansion to monitor recent cohorts. If performance remains strong, we'll resume growth. This is a strategic product leveraging our strength, as one in every four PIX transactions in Brazil goes through Nubank. -
Credit Card Performance
Q: Is Nubank reaching a saturation point in Brazil's credit card market?
A: Despite a temporary stabilization in the number of active credit cards at around 38 million, we continue to gain market share. Purchase volumes grew 24% YoY in Brazil, twice the industry rate. We expect purchase volume per active card to increase as cohorts mature, driving further growth. -
Competition in Secured Lending
Q: How does Nubank plan to compete in secured lending?
A: Our experience in secured lending is encouraging, particularly in FGTS-backed loans, where we estimate a 25% market share in originations. Our direct-to-consumer, digital-only model allows for lower acquisition costs and better pricing. We're expanding our offerings in public payroll loans, adding new collateral agreements, and expect significant ramp-up as we leverage our best-in-class user experience and cost advantages. -
Tax Rate and One-off Events
Q: Is the lower tax rate this quarter sustainable?
A: The effective tax rate is influenced by both non-recurring and seasonal factors. This quarter, we had a one-time charge of $48 million related to repositioning Nucoin, impacting marketing and G&A. Additionally, the lower tax rate is seasonal, due to the Lei do Bem, an R&D tax incentive in Brazil, which recurs annually in the third quarter. -
Entering Telecom with NuCel
Q: Will NuCel significantly impact Nubank's financials?
A: While it's early to quantify the financial impact, entering the telecom sector with NuCel presents a substantial opportunity to enhance customer experience and diversify revenues. Our partnership with Claro aligns incentives through a revenue-sharing model. With access to over 100 million customers in Brazil, we see potential for increased loyalty and cross-selling across our ecosystem.
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