NU +74% Net Income + Our Serial Acquirer Deploys 95% of FCF on M&A
Breaking down two critical earnings reports that tell very different stories
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Two very different earnings stories just crossed our desk. One shows explosive growth, while the other demonstrates strategic patience during a cyclical trough. Let's dive into what these results mean for our portfolio.
NuBank (NU)
NuBank's Q1 2025 results showcase why this company has become one of the most compelling growth stories in global fintech. Despite some margin pressure and credit challenges, the underlying growth trajectory remains extraordinary.
You can see our full investment thesis here:
The Headline Numbers: Scale Meets Execution
Customer base hit 118.6 million with 4.3 million net additions in Q1
Revenue surged 40% YoY (FX-neutral) to $3.2 billion
Monthly active users reached 98.7 million with 83% activity rate
Net income jumped 74% YoY (FX-neutral) to $557.2 million
Cash position strengthened by $834.8 million to $10.28 billion
Revenue increased 14% YoY (17% constant currency) to $11.5 billion
Income from operations reached $1.2 billion, up $1.1 billion YoY
Free cash flow soared 66% YoY to $2.3 billion (annualizing to $9.2B)
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The Good, The Bad, The Strategic
What's Working:
Monthly ARPAC increased to $11.2 from $9.6 YoY - higher revenue per customer
Cost to serve dropped to $0.7 from $0.8 YoY - improving efficiency at scale
Efficiency ratio improved to 24.7% - massive 740 bps improvement YoY
Strong asset quality in core segments with stable delinquency rates in key portfolios
Product diversification accelerating with successful new financial product launches
What's Challenging:
Net Interest Margin (NIM) compression from higher funding costs and competitive pressure
Increased credit loss provisions reflecting tougher macro environment
Rising operating expenses from technology investments and expansion
Regulatory headwinds affecting some product profitability
Why The Negatives Don't Derail The Story
While NIM compression and higher credit provisions grabbed headlines, they're largely the natural result of Nu's massive scale and market maturation. Here's why we're not concerned:
NIM pressure is industry-wide as Brazilian fintech matures - Nu's scale advantages should help it weather better than competitors
Credit provisions are proactive rather than reactive - management is getting ahead of potential issues
Operating expense increases are investments in technology and expansion that should drive future profitability
Regulatory challenges create moats - established players like Nu benefit from compliance infrastructure that startups can't match
The Bottom Line on Nu
At 118.6 million customers generating improving unit economics, NuBank has achieved the scale that creates defensive advantages. The combination of market leadership in Brazil plus early-mover advantage in Mexico and Colombia creates a powerful platform for sustained growth.
Yes, margins are under pressure. Yes, credit costs are rising. But these are growing pains for a company transforming Latin American banking, not structural problems.
The cash fortress of $10.28 billion provides tremendous strategic flexibility, while the 44% loan-to-deposit ratio shows conservative risk management despite aggressive growth.
We are happy to maintain holding NU and we will be adding to our position if the price falls under $10.5.
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