Nu Holdings Ltd.

Nu Holdings Ltd. (NYSE: NU) is a Brazil-based holding company that provides digital banking services. The company delivers financial solutions across five key areas: spending, saving, investing, borrowing, and protection. Its spending offerings allow customers to pay for everyday purchases using a tailored credit line or mobile payments, while also earning rewards and loyalty points on eligible transactions.

As per our previous Kalkine’s Diversified Opportunities Report published on ‘NU’ on May 01, 2025, Kalkine provided an ‘Buy’ stance on the stock at USD 12.45 based on fundamental analysis and the stock price has now moved up by ~ 20.96% since then and has breached resistance level 2.

Noted below are the details of support and resistance levels provided in our previous report:

Rationale – Sell at USD 15.06

• Rising Delinquencies and Asset Quality Pressures: While Nu’s 15–90 days non-performing loans (NPLs) in Brazil declined marginally, its 90+ day NPL ratio increased to 6.6%, up 10 bps quarter-over-quarter. This highlights ongoing challenges in credit quality, as longer-term delinquencies are building despite improvements in early-stage risk. Additionally, NPL formation ratios for Brazil’s consumer credit portfolio suggest that asset quality remains under pressure, especially with unsecured lending still making up a significant share of Nu’s credit portfolio.
• Margin Compression and Rising Costs: Gross profit margins have narrowed to 42.2% in Q2 2025, compared with 47.7% a year earlier. The efficiency ratio also deteriorated slightly to 28.3% due to higher RSU (restricted stock unit) expenses from vesting and increased marketing spending. This indicates that while revenues continue to grow strongly, profitability is being diluted by higher costs of expansion and compensation. Risk-adjusted net interest margins (NIM) have also weakened in recent quarters, showing sensitivity to credit provisioning and funding costs.
• Dependence on Macroeconomic and FX Conditions: A significant portion of Nu’s operations remains concentrated in Brazil, exposing it to currency volatility and macroeconomic risks. The company uses FX-neutral reporting to smooth results, but reliance on this adjustment highlights the sensitivity of financial performance to exchange rate movements. Rising interest rates or inflationary pressures in Latin America could further impact credit demand, funding costs, and delinquency trends, making Nu’s growth trajectory vulnerable to external shocks.
• Competitive and Regulatory Challenges: Although Nu is scaling rapidly across Brazil, Mexico, and Colombia, it faces intensifying competition from incumbent banks, fintechs, and new digital entrants. Regulatory requirements in each country—such as capital adequacy ratios and local supervisory oversight—pose additional compliance burdens. Moreover, the reliance on non-IFRS metrics like adjusted net income and FX-neutral measures to present performance creates opacity for investors, raising questions about the sustainability of reported profitability.

Valuation (Using Price/Book Value Multiple)

Share Price Chart

Conclusion

Nu Holdings’ Q2 2025 results reveal underlying pressures despite headline growth. Rising 90+ day delinquencies signal persistent credit quality risks, while gross profit margins have eroded from prior levels due to higher compensation and marketing costs. Heavy reliance on FX-neutral reporting underscores vulnerability to Latin American currency swings, and growing regulatory and competitive challenges add further strain, raising concerns about the sustainability of its profitability.

Based on the notional gains, valuation downside and price action stance, a "Sell" recommendation on Nu Holdings Ltd. (NYSE: NU) has been given at the current market price of USD 15.06 as on 28 August 2025 at 9:05 am PDT.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 28 August 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.